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A Professional Analysis Of Tesla Short Interest
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Home » Investing » A Professional Analysis Of Tesla Short Interest

A Professional Analysis Of Tesla Short Interest

tesla short interest
Image by Daniel Oberhaus (2018)

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This article was last updated on April 12, 2022

Tesla is one of the most talked-about companies in the world. Investors, tech enthusiasts, politicians, and car enthusiasts are all keeping a close watch on the EV producer and its innovative approach to car production. For the past two years, Tesla has been particularly prominent in the investment world, as it has become a trillion-dollar company. However, over the years, even this giant has had its ups and downs. While many have profited from investing in the company, some have done so by betting against it. As a result, Tesla’s short interest has become an important factor for anyone looking to invest in the market of electric vehicles.

What Is Shorting?

In finance, shorting refers to the practice of borrowing shares or other assets and selling them to other investors. Investors will do this when they believe that a certain stock is overpriced and is about to drop in value significantly. Also known as selling short, this is a bearish investing strategy and signifies low confidence in the future of the price.

When shorting, investors will borrow a certain asset for a specific period of time under a contract. They will then go on to sell the borrowed assets to other investors. Under the contract’s terms, once the specified time has elapsed, the borrowing investor has to return the same assets to the lender. Since these assets are fungible, they can simply buy the same amount that they borrowed and return these.

In the practice of shorting, profit is derived from the expected fall in the price of a particular asset. If you believe that the prices of company X’s stocks will fall, you can borrow some amount of these and sell them. Then, when prices drop, you can buy the same amount at a lower price and return them to the lender. The difference between the price you sold at and the price you bought at is the profit you make from the strategy.

What Is Tesla Short Interest?

Short interest indicates the number of short positions open on a particular stock. These are outstanding, as they have not been covered. This means that the borrowers have not yet bought back the assets that they owe. Naturally, they have not been closed either, which means that they have not been repaid to the lender. Determining a company like Tesla’s short interest can tell you what moves you should take with its stock.

Short interest can be expressed as either a number or a percentage. When it is the latter, you can calculate it by dividing the number of shorted shares by the total number of shares outstanding. By looking at short interest, investors and analysts can determine the market’s sentiment. This is a useful tool to discern the direction that a stock is going. Generally, you open long positions on bullish stocks and short ones on bearish stocks.

Tesla Explained

Tesla is the world’s leading electric vehicle (EV) manufacturer. Founded by Elon Musk and based in California, Tesla offers a variety of electric cars with a focus on design and automation. The company has a market share of over 66% in the United States. This makes it the largest producer in the country by a significant amount.

The company’s stock has exploded in price since 2020, largely thanks to various rallies among retail investors. Stock prices hit their peak in November 2021, when they reached $1,243. This is much higher than the $80 that Tesla was trading at prior to 2020. Today, Tesla is a trillion-dollar corporation that sits alongside giants like Apple and Microsoft.

However, Tesla’s high price is also highly attributed to the company’s future-oriented strategy and extensive vertical integration. Since Musk’s corporate empire spans numerous industries, Tesla is able to take advantage of advanced technologies and cheaper materials provided by other companies. Additionally, Tesla has taken advantage of lucrative tax breaks and subsidies in the United States to support itself. This has allowed the company to grow at an exponential rate.

Current Short Interest On Tesla Stock

While Tesla is an incredibly popular choice among investors, many have also bet against the company over the years. While they have seen varying success from this, more and more people are asking themselves if shorting Tesla is a viable option. In order to determine this, we will need to look at the company’s short interest.

Since Tesla is listed on the NASDAQ stock exchange, we will need to look at the short interest report from that particular exchange. In the NASDAQ’s case, short interest reports are published twice a month. According to the latest report, there are 24,326,020 shorted shares as of February 15, 2022. If you would like to express that as a percentage, it would come out to about 2.25%. This is much lower than the highs of April 2021, when short positions reached over 50 million.

However, not all is well for Tesla. The company has been facing increased scrutiny over poor working conditions, anti-union practices, and inappropriate behavior. This, paired with the uncertain continuation of tax breaks for some in the US EV market, has thrown doubts on Tesla’s future.

Additionally, while the company has enjoyed a relatively competition-free market up until now, other major manufacturers have now ramped up their own EV production. Ford, Honda, Mercedes, BMW, Hyundai, and others have now entered the market to a varying degree. Each of these produces a different type of vehicle that will cater to different customers. This threatens to saturate the market, making it much more difficult for Tesla to compete.

While Tesla’s short interest has certainly fallen off since the first half of 2021, it has been on the rise once again. Since the start of 2022, many short sellers have profited off of betting against the popular company.

Best Places To Short Tesla Stock

While shoring is a common practice among investors, you will need an online trading platform or broker to do it. As with everything else in the world of trading, some platforms are better than others for shorting certain stocks and assets. Here are a couple of the best online platforms to short Tesla stock:

Etoro

With over 20 million users, eToro is one of the most popular online trading platforms in the world. The website allows trading in assets such as stocks, futures, ETFs, indices, forex pairs, commodities, cryptos, and more. For stocks, users have access to 17 different exchanges, including the NASDAQ which is where Tesla is listed.

Additionally, eToro has a 0% commission fee on all US stocks which is another plus for those looking to trade in Tesla stock. On the platform, you will be able to short stocks through a contract for difference (CFD) which you enter into with the platform holder. As a result, the actual underlying asset does not change hands but both parties must adhere to the conditions of the contract.

Etoro is a great option for newer investors as it has a simple design that is easy to understand. This makes it accessible to beginners as they might not know the ins and outs of the various tools and instruments. Additionally, eToro’s extensive copy trading system allows you to copy the moves of experienced and prominent traders.

Interactive Brokers

Interactive Brokers is one of the oldest brokerage services in the online space. The platform has been around for decades, during which it has cemented itself as the platform of choice for both professional and retail traders. IB is rich in features and tools, making it perfect for advanced users. The platform provides extensive information and statistics to users, however, at a price.

Because it is professional-focused, IB offers its various tools piecemeal in the form of subscription plans. Customers who want real-time market data will need to pay for each market separately. While not extremely high, these monthly fees can stack up for retail traders. This can be particularly annoying for casual investors who do not use the platform that often.

Nonetheless, IB remains the premier online broker for those looking for professional-level brokerage service. The platform gives access to numerous markets and extensive data. These are ideal conditions that facilitate trading at a top level.

The Bottom Line On Tesla Short Interest

All in all, Tesla is a company that can bring profits, regardless of what way you choose to go. There are solid arguments both for and against the company’s future potential. As the leading global EV producer, Tesla still has a significant advantage over its competitors. Additionally, Tesla is uniquely positioned to lead the way in automation and AI.

However, the company is sure to encounter many more challenges going forward. For one, the electric vehicle market continues to grow, introducing more competitors to Tesla. Additionally, many of the tax breaks and subsidies that Tesla has heavily relied on in the past have now become uncertain. This presents a legitimate danger of putting the company in the red.

Whatever your strategy when it comes to Tesla, it is always important to take into account all factors in the market. Chief among these is the short interest which can tell you what the market’s deposition towards the company is. This can provide you with insight into its future.

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