Tesla Inc. (TSLA) shares rose over 20% during after-hours trading on Wednesday after the company crushed its Q3 earnings. The electric car maker returned to profitability last quarter and reported positive free cash flow. It also shared that its operating expenses are at the lowest level since Model 3 production started and its Shanghai Gigafactory is ready for production ahead of schedule. CEO Elon Musk listed the highlights in an uncharacteristically subdued tweet and said he was "super proud" of the Tesla team.


Tesla stock, which looks set to surpass $300 today, has made a remarkable recovery from early June when it hit its year-to-date low of $178.97. It was the year's most profitable short trade in the domestic market as of Wednesday, but for investors betting against the company, the earnings surprise wipes out 75% of this year's $1.97 billion mark-to-market profits, according to S3 Partner's managing director of predictive analytics, Ihor Dusaniwsky.

'Lingering Hug' Rather Than a Classic Squeeze

While short sellers piled into Tesla in the first half of 2019, they have been steadily covering their exposure since June, according to a note from the financial technology and analytics firm published Wednesday. In less than five months, shares shorted have decreased by 11.59 million or 26%, bringing total short interest in the electric car manufacturer to $8.39 billion. October alone accounts for three million short shares covered.

Dusaniwsky says it's likely that these are recent short sellers closing up their positions, rather than older shorts who have "much more conviction and staying power." The chart below from S3 shows Tesla's stock price vs shares shorted.

Tesla Price SI
 S3 Partners

Tesla and Apple Inc. (AAPL) were neck and neck in the most-shorted domestic stock ranking starting May until last month. Since September 20, Apple short interest has surged to $10.4 billion with over 877,000 new shares shorted.

Tesla and Apple SI
S3 Partners

"TSLA long shareholders continue to look for the 'the big short squeeze,' but TSLA’s 2nd/3rd quarter rally and short covering was more like a 'lingering hug' rather than an all out 'short squeeze,'" said the note. "Although the size of the price move and number of shares shorted qualifies for a moderate short squeeze, its gradual rate of change and extended duration did not match the abruptness of a classic short squeeze."

Dusaniwsky added on Twitter that if a short squeeze were to occur following the earnings announcement, "it would probably last a few days for shorts to cover in an orderly and price effective manner." He also predicted that if the stock price rises above $300, which it looks like it will, total shares shorted will fall below 30 million.