The Motley Fool

Short sellers are betting US$20bn against the skyrocketing Tesla share price

The Tesla Inc (NASDAQ: TSLA) share price is making a meal out of short-sellers as it surges to a record high, but the bears are biting back by upping their bets against the tech darling.

Shares in the electric car maker jumped by nearly five-fold over the past year to hit an all time high of US$1,394.28 a share yesterday. It’s now the world’s largest automaker with a market cap of US$258.5 billion ($373 billion).

This prompted its eccentric and divisive founder Elon Musk to sell bright red short-shorts to mock the doubters. If you thought of buying a pair, you are too late. They sold out in minutes, reported the New York Post.

Playing chicken with the Tesla share price

But instead of retreating, the short-sellers are fighting back with short-interest in the stock rising to US$19.95 billion ($28.78 billion), reported the Australian Financial Review.

This amount is likely to hit US$20 billion, and if that happens, Tesla will be the first company in history to have such a large bearish bet levelled against it, according to S3 Partners which was quoted in the AFR.

Short-sellers are those who borrow a stock to sell it on-market with the aim of buying it back at a lower price later to profit from the difference.

While growing short-interest suggests these bearish traders are on the attack, they are nursing large losses too.

Doubling-down in high stakes poker

Based on S3’s calculation, short-sellers have suffered a whopping US$18.1 billion year-to-date net-of-financing mark-to-market loss. Of this staggering amount, 43% of the losses occurred within the last five weeks.

While short-sellers can put downward pressure on a stock, they can also give it a big boost. S3 believes that the Tesla share price is popping in more recent times because short-sellers who can’t weather the pain are forced to buy the stock to close their position.

This is called a short-squeeze. But as some bears are throwing in the towel, others are stepping in on the belief that the Tesla share price has overshot fundamentals.

Will the Tesla share price fall?

This could well be the case as even Elon was recently jawboning the Tesla share price even as supporters point to its huge potential in China.

Counting on the Chinese to support making a US company super rich sounds like a dangerous gamble in this day and age, but that isn’t likely to turn off Tesla’s army of fervent worshippers.

The closest thing the ASX has to this is the gravity-defying Afterpay Ltd (ASX: APT) share price, which is also winning over many sceptics as it blasts off into the stratosphere.

However, there is a lot of room for the Tesla share price to fall given its outperformance that puts other US tech darlings to shame.

The mighty Apple Inc. (NASDAQ: AAPL) share price is “only” up 90% over the past year, while the Netflix Inc (NASDAQ: NFLX) share price and Alphabet Inc Class C (NASDAQ: GOOG) share price are ahead by 30%-plus each.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors.

Brendon Lau has no position in any of the stocks mentioned. Follow me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares), Apple, Netflix, and Tesla. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (C shares), Apple, and Netflix. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles...