Today's news shows just how desperate the shorts are to see Tesla's shares drop. Tesla has issued a safety update warning that the company is recalling a total of about 53,000 Model S and Model X vehicles, and the stock dropped in seconds, from around $308 to around $300.
(Interactive Brokers TWS)
The Tesla update notes that the electric parking brakes installed in the Model S and Model X vehicles built between February to October 2016 may contain a small gear that may have been manufactured improperly. The fears is that if the gear breaks, it would keep the car from moving, with the parking break stuck in place.
The shorts are scrambling to put on positions and push shares lower, but their not having a great deal of success. Shares are still down in the wake of the recall announcement, but shares have recovered to around $303.50 around the time of this writing. Recalls happen all the time to other manufacturers, but when it comes to Tesla anything is enough to get the shorts pressing.
Short Shrift for the Shorts
If anything, today's trading action serves as a real test of how little control the shorts have left at this point. As of March 31st, there were nearly 31.3 million shares short out of a total float of 133.90 million. With the shorts out of luck today, their next opportunity will be with earnings on May 3rd. The underlying bid in the shares of TSLA since the secondary offering a few weeks back has been incredibly strong. Neither a shaky equity market nor heightened geopolitical risk have been able to put fear back into the long positions.
Keep an eye on the way the stock trades, a strong close today would sound the death knell for the shorts. For now, anyway.
Michael Kramer and the clients of Mott Capital Management, LLC own shares of TSLA. Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.