• Nikola short sellers may be forced to buy due to fees and losses
  • The company is the sixth largest short in the auto manufacturing industry
  • June mark-to-market losses for auto shorts at $2.58 billion, largely due to Tesla

Electric truck maker Nikola Corporation may have developed a keen fan following among retail investors who have pushed up its market cap, but with zero revenue anticipated this year, it has also drawn the attention of short sellers. The Phoenix, Arizona-based company, which recently went public, is already the sixth-largest short in the auto industry with $526 million of short interest.

Stock borrow rates for Nikola are soaring due to heightened short selling demand and limited lending supply. Stock borrow costs on existing short positions is 243.57% annualized fee and rates exceeded 600% in yesterday’s trading. Short sellers have also sustained mark-to-market losses of $244 million in June, and the stock keeps climbing. This combination makes Nikola a "prime target for a short squeeze," said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners in a new note.

auto shorts
Source: S3 Partners.

"NKLA’s lack of supply has two main drivers, lack of institutional long shareholders and large amount of insider shareholders," said Dusaniwsky. "The lack of stock borrow supply has throttled any chance for short sellers to build their position and create negative stock price pressure in the stock. And finally, we are seeing stock borrow recalls hitting the street, forcing some shorts to buy-to-cover and close their positions as there is no stock borrow supply available to replace those recalled stock borrows."

Mark-to-market losses this month for short sellers targeting the Auto Manufacturing Sector is $2.58 billion, and most of this is attributable to electric vehicle makers. Excluding shorts betting against Tesla, whose stock has been skyrocketing lately despite its CEO calling it overvalued, this figure comes down to $960 million. The other big sources of losses are Nikola and Chinese manufacturer NIO.

auto shorts
Source: S3 Partners.