If you listened closely while Tesla Inc.'s (TSLA) shares were plunging over 14% on Thursday, you could hear investors shorting the stock clink glasses as their collective mark-to-market profits rose by $1.55 billion. The stock was hit after the company reported a bigger loss than expected and announced the departure of co-founder and CTO J.B. Straubel.
The year-to-date mark-to-market profits for Tesla shorts is $3.06 billion, up 35% for the year, according to the latest note from S3 Partners.
The financial analytics and technology company added that the stock's biggest decline in 10 months rules out the possibility of a short squeeze.
"We should expect some short covering in the near term as recent short sellers may choose to close out their positions and realize their profits. But this price move has taken the idea of an impending Tesla short squeeze totally off the table, shorts now have a $3 billion buffer of year- to-date mark-to-market profits to comfort them and help keep them in their positions," said Ihor Dusaniwsky, managing director predictive analytics at S3.
Tesla short interest in currently $10.59 billion, making it the most shorted U.S. equity. The almost 40 million shares shorted make up 30.35% of its float.
It is also the most shorted stock in the worldwide automotive sector, with short interest being ten times that of the next biggest targets like Toyota Motor Corp. ($1.5 billion short interest), Daimler AG ($1.3 billion), Ford Motor Co. ($1.3 billion) and General Motors Co. ($1 billion).
CEO Elon Musk has been aware for some time about the shorts that stalk his company's every move and has lashed out in the past, often hurting his own firm's interests. While the shorts have been staying the course, they weren't too confident about the outcome on Wednesday, as S3 Partners' analysis indicates. Tesla bears betting against the stock were trimming their exposure ahead of the quarterly earnings report. According to the note, Tesla shares shorted decreased by 1.4 million or 3.46% in July and by 2.5 million shares or 5.91% over the last week.