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Making $3.4b in an hour, Musk takes revenge on Tesla short-sellers

The surge topped off an incredible share price rally over the past six months. Since a June 2019 low of $US179, the shares have risen by more than 200 per cent, causing $US11.45 billion ($16.9 billion) in losses for short-sellers, according to figures from analysts S3 Partners.

In 2020 alone, short-sellers have lost $US3.6 billion as the company broke through the crucial $US100 billion valuation threshold, putting Musk in line for a £260 million ($501 million) payday.

Musk, 48, owns about a fifth of Tesla’s outstanding stock, which comprises the bulk of his fortune, while his closely held Space Exploration Technologies accounts for about $US14.6 billion.

The share rally has been based in part on Tesla’s faster-than-expected establishment of its China manufacturing operations. In October it announced that its new Shanghai gigafactory had already begun production of its Model 3 cars, and added that the new Model Y SUV would begin production this summer, also ahead of schedule.

It also unveiled a shock profit, confounding Wall Street expectations and thrilling loyal investors, many of whom celebrated by taunting their sceptical opponents on social media.

It was another reminder that Tesla’s audience is sharply divided between bulls and bears, both sides equally obsessed with the company.

The velocity and trajectory of the (share price) move has been jaw-dropping

Dan Ives, of Wedbush Securities

Bulls think Tesla is on track to be the most valuable company in the world, while bears believe it should be worth nothing at all. That dynamic isn’t going away, says Dan Ives, of Wedbush Securities.

“A lot of the bears, even though their conviction levels have increased, their hands have been forced and they are having to cover some of their shorts,” he says. “But the emotional bull-bear story continues to be a major line of demarcation.”

The figures suggest that overall, shorts are not pulling back as much as you might expect. While analysts say at least some of the rally is down to short-sellers covering their positions, during the 30 days to January 24 short interest actually grew by 0.5 per cent, figures from S3 Partners show.

‘Whole new swarm of bears’

Ives says a “whole new swarm of bears” has arrived as Tesla’s share price has climbed to levels sceptics believe are unsustainable. Meanwhile, this has been a “joy ride” for Musk and the bulls.

“The velocity and trajectory of the move has been jaw-dropping, even as someone who is more optimistic about the company,” he added. “In 20 years covering technology it’s one of the more eye-popping moves I can remember seeing.”

Musk has achieved many things that no one thought he could. He has made his company profitable, mass-produced an electric car and expanded to Europe and China.

Global demand for electric vehicles is growing and Tesla looks poised to capitalise.

Tesla's rapid establishment and success of its China operations have helped push its share price higher.

Tesla’s rapid establishment and success of its China operations have helped push its share price higher.Credit:Bloomberg

The controversial Cybertruck, though aesthetically divisive, opens up a whole new market for Tesla, one with bigger margins than there are for smaller cars. Backers also point to the company’s work on self-driving technology, and its chief executive’s claim that its cars will soon form a fleet of autonomous taxis, making their owners money without them having to lift a finger.

But there could be headwinds ahead, says technology analyst Sam Abuelsamid of Navigant Research, who argues that Tesla’s fortunes could soon reverse as established carmakers including Ford, General Motors and newcomer Rivian finally begin to catch up by launching their own desirable electric vehicles.

“None of [these developments] are necessarily justification for sustained improvements in the stock price,” he said.

Critics have raised questions about the Cybertruck’s road-readiness, arguing that the version seen in November’s launch might struggle to be approved by road safety regulators, made as it is of stainless steel and shaped with a harsh, boxy front rather than the rounded car bonnets more commonly used by manufacturers.

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Optimistic predictions

And Musk’s optimistic self-driving predictions – which sounded outlandish when he made them – look increasingly unlikely to come off by his target of the middle of this year.

“Elon Musk has never set a deadline he couldn’t miss. I have no doubt that they will not have full self-driving in 2020,” added Abuelsamid.

The real question is whether anything can stop this historic rally. Even as Tesla ticked off a long list of achievements over the past six months, the company and its chief executive faced a storm of bad press, including a shareholder lawsuit over the SolarCity merger, a defamation case brought by a British caver he called a “pedo guy” (which he won, but for any other company the case itself would have been terrible PR), and rancour from customers over its declining standards of service and long waits for parts.

Amid all that, Tesla has still experienced rocket-like growth in its shares.

It will take something far bigger to break the faith of its supporters – and to end the pain of its detractors.

Telegraph, London, with Bloomberg

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