Is Tesla Motors Inc Stock Experiencing A Short Squeeze?

Is Tesla Motors Inc Stock Experiencing A Short Squeeze?
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Tesla stock continued to climb today, rising another 2.5% to reach as high as $261.89 per share in late morning trading. The Model 3 unveiling held last week has been driving the shares higher and higher, and this has caused at least one investor to call it out as a potential short squeeze.

Tesla stock rises on Model 3 preorders

Tesla shares tumbled following the automaker’s last earnings report in February but have recovered handily since the day before Model 3 preorders began. The company created a circus-like atmosphere a la Apple by starting preorders only in stores on the first day, it quickly became evident that demand for the mass market electric car may be bigger than even Tesla bulls were expecting. In the first 24 hours, they took 180,000 preorders for the Model 3, and that number kept climbing rapidly, pushing Tesla shares higher and higher.

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Forbes contributor Chuck Jones noted that it should come as no surprise that Tesla stock has responded so strongly to the Model 3 preorders. As of Sunday morning, the automaker had taken 276,000 orders for the EV, which amounts to a cash influx of nearly $300,000 because each preorder requires a $1,000 deposit.

Why Tesla’s rise feels like a short squeeze

Jones notes that Tesla missed its delivery guidance for the first quarter, which caused its shares to pull back a bit, but they quickly reversed course. The automaker basically said that it had stuffed the Model X so full of technology that it was experiencing manufacturing issues, adding that the problems were resolved toward the end of the quarter.

The Forbes contributor said Tesla stock’s intra-day movement on Monday “feels like a short squeeze,” adding that as of mid-March, 32.2 million shares were being sold short, which represented approximately 25% of the automaker’s shares. Further, the number of days to cover was at about six or seven, depending on which source is used for the average daily trading volume.

On Thursday, nearly 8 million shares of Tesla stock changed hands, and that number doubled on Friday and surpassed 13 million on Monday. Jones suggests that short-sellers began covering their positions on Monday when they released that the stock was rising despite the bad news about the delivery miss, thus adding to the frenzy that was already going on thanks to anxious investors wanting to get in on such a popular stock.

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