Between May and early September 2018, Tesla was the most shorted US company stock, and short-sellers remain keenly interested in it, not least because of founder Elon Musk’s recent behavior. Vocal in his dislike for those betting against his company, he often accuses them of personal antipathy and sheer ill will. However, many seasoned and well-regarded investors are choosing to short the stock for reasons that have nothing to do with feelings even though Musk is partly responsible for the current situation, comments — Reda Bedjaoui, CEO of Redbed Investments LLE and banking industry expert, who recently attended the 2019 SIBOS Conference in London.
Tesla is undoubtedly the best-known EV manufacturer and a pioneer in its field. Driven by Musk’s zest and vision, the company was for a time considered the most exciting thing to happen in the automotive sector for decades. Gradually, however, the cracks started to appear: missed production targets, piling debts, a stock surging for no apparent reason, and an overblown valuation. While Tesla’s cars have never lost their attraction, the company has not been able to meet demand, which has led to a precarious financial situation. This is the main reason why many investors are skeptical about the prospects of the business and why short-sellers refuse to go away. The company has long-term debts of around $11 billion and has never reported a profit since going public in 2010, yet its stock price has gained almost 2,000% over that time, and its market value currently exceeds that of automotive stalwarts Ford and General Motors, Reda Bedjaoui notes. This inflated valuation is one of the top reasons for the short-selling interest in Tesla, others being its unprofitability, the speed at which it is burning through its cash reserves, and dwindling confidence in Musk, according to investors interviewed by the New York Times.
The situation has not been helped by Musk’s recent behavior, as noted by Bedjaoui, specifically his notorious tweet early in August 2018. The CEO took to the social media platform to declare that he intended to take Tesla private and had secured financing to pay $420 per share. The stock spiked in the immediate aftermath of the message, but the frenzy was short-lived as it transpired there was no funding in place. Moreover, the controversial tweet prompted the involvement of Department of Justice and the Securities and Exchange Commission. To make matters worse, Musk did a massive favor to short-sellers with an interview for the New York Times, telling the newspaper: “This past year has been the most difficult and painful year of my career. It was excruciating.” The day following the publication of the interview saw Tesla’s shares lose 9% of their value, which handed short-sellers profits of more than $1 billion, as estimated by S3 Partners. According to data from the same analytics company, short interest in Tesla’s stock was worth almost $10.6 billion as of September 20, 2018, with about 35.4 million shares shorted, or 27.79% of the float. Reda Bedjaoui concluded his analysis, “The latest data put Tesla at number three on the list of most shorted US stocks, and this interest is unlikely to wane until the company persuades investors it can improve its capital structure and deliver on its promises.”
Reda Bedjaoui, the CEO of Redbed Investments LLE, is renowned for his expertise in corporate governance, risk management, and regulatory compliance, providing his services to corporations in North America, the Middle East, and the UK. With a wealth of experience in multi-sector international investing, he offers valuable insights to both fledgling and veteran investors in the areas of futures trading, options trading, and hedge funds.
Reda Bedjaoui - Expert Investor and CEO of Redbed Investments: http://www.redabedjaouinews.com
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