(Bloomberg) — Tesla Inc.’s huge profits caught everyone off guard.
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But it was the bears who paid the price this week. The electric vehicle maker’s results were a blow to short sellers – investors who make money by betting a security will fall over a period of time – as they saw all their profits for the year wiped out in just one trade. day.
Expectations heading into the EV giant’s after-hours report on Wednesday were low, with shares down about 14% this year and both Wall Street and Main Street thinking electric car demand would continue to struggle . Instead, Tesla delivered an optimistic report, with CEO Elon Musk telling investors that the company would see as much as 30% growth in car sales next year.
By the end of Thursday, Tesla had added $150 billion to its market value after a 22% stock surge – the biggest one-day jump since 2013. Short sellers, by contrast, suffered an estimated mark-to-market loss of $3.5 billion. , according to data from S3 Partners. Worse, their $1.7 billion profit for the year has been wiped out; short positions are now down $1.8 billion for 2024.
“Tesla’s guidance has been extraordinary,” said Steve Sosnick, chief strategist at Interactive Brokers. “At least yesterday the market was willing to trust Elon Musk’s claims about sales growth.”
Shorts weren’t the only ones surprised by the report. Analysts on average expected Tesla to report a 10% decline in quarterly profit. Instead, the company jumped 9% from the prior-year period. And a key metric for Tesla – its auto industry gross margin excluding regulatory credits – also exceeded expectations.
A look at options positioning shows that investors were unprepared for a big move up. The options trading implied that traders expected the stock to move about 6% in either direction after the results. That’s a low number to begin with, considering Tesla shares are up at least 9% after the previous seven quarterly earnings.
Now that at least some confidence has been restored that the worst of the slowdown in electric car demand is over and that the company is making steady progress toward developing a fully self-driving car, investors are piling into the stock again. Demand for call options increased as traders chased the rally. Three-month calls rose to a premium over bearish puts on Thursday for the first time since late August.
Wall Street is also becoming more optimistic. Several analysts have raised their price targets for Tesla following the results and the rapid rise in the stock price. And bears are becoming increasingly rare. About 2.9% of Tesla’s free float is now short, S3 data shows, hovering near what the company called “historic lows.”
While the rally in Tesla has been unusually strong, market watchers including Matthew Unterman of S3 Partners and Stuart Kaiser, Citigroup’s US equity strategist, see little sign that the gains were due to a so-called short squeeze – where traders are forced to withdraw from their stock markets. cover. bearish bets quickly, ultimately reinforcing an asset’s upward momentum.
“Thursday’s action appears to be driven more by surprisingly strong performance against the backdrop of a shortage of shares than by aggressive short covering,” Kaiser said, noting that short interest in the stock is low.
“There was pent-up demand for the stock to perform well,” said Dave Mazza, CEO of Roundhill Financial. “There are dedicated followers, both retail and institutional, who were waiting for less than the worst news.”
Disappointment following the company’s unveiling of self-driving vehicles earlier in October and the sell-off that followed also kept sentiment on the stock subdued.
“Given the robotaxi debacle, its recent tendency to sell off after earnings, and the perception that the stock was about to collapse if that happened, I believe many traders have been sidelined and many investors are holding the stock in had property. ” said Sosnick of Interactive Brokers.
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