Interesting read:
Tesla Short Squeeze Thesis Fading (NASDAQ:TSLA) | Seeking Alpha
A year ago, we were looking at more than 41 million shares outstanding, which was more than 23% of the stock's total. That would make Tesla one of the most shorted names on the street. Now, there are just 15 million shares short, with the shares outstanding number up by 11.65 million in the past 12 months. That means that now only about 8.2% of shares outstanding are now short, which isn't terribly outrageous.
What's the key takeaway here? Well, if you are betting on Tesla going much higher because of a short squeeze, chances of that happening have been greatly reduced. That's not to say the stock can't go higher still on good news, like the company perhaps beating
Q2 delivery estimates. However, a short squeeze isn't likely in the cards with short interest down by nearly two thirds in the past year thanks to a tremendous rally, along with the days to cover ratio hovering a little above one. If you are looking for a stock with a high percentage of shares short that can be squeezed much higher, Tesla doesn't really fit the bill at this point.
I agree with all points here, but to carry the discussion further...
The chances of Tesla falling because shorts re-enter the stock is far greater than Tesla rising on short covering. Obviously, shorts have much more to gain with the SP at ATH's than anytime before. Ironically, historically, short interest for TSLA has been inversely correlated to the SP - the opposite of what you would expect and the reason shorts have been decimated over the years. (Of course, the theory persists that incredibly high short interest during periods when Tesla struggled was an attempt to bankrupt the company vs. profiting solely from the trade itself).
So, who would dare to short TSLA right now? With the SP on fire, deliveries likely to exceed Street expectations, Q2 profit/S&P inclusion more likely than ever, and Battery Day in September, few are likely to step in front of that freight train.
However, a big macro dip could get the dominoes rolling...
COVID-19 is still with us and I'd label it as most likely to be the first domino. CA cases are accelerating, daily deaths were 105 yesterday (vs. ATH 121 Apr 22) [worldometer], and some reopening has been rolled back. Cases in NV have also been accelerating, albeit with a dip the last three days (however, there has been no corresponding surge in hospitalizations and deaths, so perhaps that state is less of a concern). A second shutdown of either Fremont or GigaNevada could start the ball rolling. Furthermore, the risk of a dreaded second wave in the winter remains.
If not COVID-19, it could be that the market finally snaps out of its euphoria and recognizes it has run too far ahead of the real economy and we get a serious pullback. This may happen on its own accord or could be COVID-19 induced. TSLA won't be spared. It may not sell off as hard as other names, but even a 10-20% pullback could get weak longs running for the exits.
Call them what you wish - Robinhooders, sports gamblers that have applied themselves to markets where almost every bet is a winner, inexperienced day-traders claiming to be the next Buffett. Markets have been turned on their head with money sloshing around everywhere. Names like NKLA, FUV, and WKHS have skyrocketed with new found traders trying to get in early on the next TSLA. And of course, TSLA itself has no doubt benefitted from this FOMO. With trading/investing so fickle right now, I wouldn't rely on new shareholders to hold through a substantial pullback.
On top of that, how levered are these weak longs? Inexperience + success is a terrifying combination and likely fits the bill of those still piling into TSLA at these highs. When stocks only go up, everyone's a hero and risk management is ignored. When that happens, leverage increases by way of margin and naked option selling. When an inevitable correction comes, margin calls will follow, and a downward spiral will be initiated. The piper has to be paid.
Which brings us full circle back to the shorts. With the market surging since mid-March, traders have found much surer ways to make money than shorting TSLA. However, if they sense weakness, it'd be foolish to think TSLA won't be considered a target (perhaps by a smaller audience this time around, though). Will the olden days (7 months ago) of TSLA's volatility return? Perhaps not, but TSLA has been on an absolute tear and even winners take a breather now and again.
