The recent rally in Tesla’s stock price is causing headaches for short sellers, as the fundamentals of the electric vehicle (EV) business are proving too strong to ignore, according to fund manager Gary Black.
Short interest in Tesla spiked recently, with hedge funds finding themselves caught on the wrong side of the trade. This surge in short positions ultimately led to significant losses for these funds, with estimates suggesting that Tesla shorts lost around $3.5 billion in just two sessions following the company’s second-quarter deliveries report.
Despite the challenges faced by short sellers, analysts remain optimistic about Tesla’s prospects. Morningstar analyst Seth Goldstein highlighted potential improvements in Tesla’s profit margins, driven by lower production and raw material costs. He also expressed confidence in the company’s ability to return to profit growth by 2025.
On the other hand, hedge fund managers like Ambient’s Fabio Pecce find it difficult to take a clear position on Tesla, given the conflicting views on the company’s fundamentals and management effectiveness. Some investors, like Blue Orca Capital’s Soren Aandahl, have decided to steer clear of shorting the EV sector altogether, citing undervaluation in the market.
However, Eirik Hogner from hedge fund Clean Energy Transition remains cautious, suggesting that more bankruptcies in the EV space may be needed to restore market health. Despite recent bankruptcies among EV startups, Tesla’s position remains strong, thanks to its strategic positioning in the EV market’s secular megatrends.
In premarket trading, Tesla’s stock fell slightly, but the company’s recent strong performance has already erased its year-to-date losses. With an increase of about 38% in its stock price over eight consecutive sessions, Tesla seems poised to continue capitalizing on the growing demand for EVs over traditional internal combustion engine vehicles.
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