Tesla's Rally Causes its Army of Shorts a $1 billion Headache

One notable group of losers has emerged as a result of the 10 percent increase in Tesla Inc. shares on Thursday following the electric vehicle manufacturer's strong earnings report.

With almost 3% of its float held in short-selling positions, Tesla is the most shorted stock in the world. According to S3 Partners, these investors are suffering mark-to-market losses of more than $1 billion just from Thursday's increase. According to S3, this brings their monthly losses to $2.67 billion.

“Tesla short sellers were actively trimming their exposure ahead of the earnings release, covering 2.09 million shares, worth $1.55 billion, over the last 30 days,” S3’s managing director of predictive analytics Ihor Dusaniwsky wrote in a note. Short sellers could continue to get squeezed out of their positions due to such “large and sudden losses,” he wrote.

Shares of the Elon Musk-run business ended a seven-day winning streak in New York by closing at $815.12, their highest level since May 6. Of course, none of this changes the fact that Tesla shorts have had a strong year thus far, generating mark-to-market profits of $6.34 billion in 2022.

It comes as no surprise why. The company is currently experiencing a difficult year as a result of supply-chain issues and rising raw material prices. It had to deal with production halts brought on by lockdowns related to Covid in China. Additionally, Musk's unsuccessful pursuit of the social media company Twitter Inc. negatively impacted investor sentiment.