Elon Musk’s Tesla, SpaceX Stock Nosedive Leads Nearly $20 Billion Profit For Short Sellers

Short sellers against Elon Musk-led Tesla Inc. and SpaceX have raked in nearly $20 billion in paper profits from the recent nosedive in both shares, data from S3 Partners and Ortex Technologies show.

Elon Musk’s Tesla Stock Plunges Close To 15%

The Tesla stock fell nearly 15% on Thursday to close at $319.69 after the electric vehicle firm’s disappointing second-quarter earnings report. This marked the largest daily drop in a year for the company. The loss on the earnings report came as a reminder of investor doubts about the company’s high-priced artificial intelligence and robotics business.

Ihor Dusaniwsky, the managing director at S3 Partners, said that the one-day drop alone would leave the one-day sell-off about $4.12 billion in the red for Tesla. The other finding from the S3 was that approximately 3% of Tesla’s outstanding shares are sold short.

BNP Paribas analyst James Picariello maintains a sell rating on Elon Musk-backed Tesla, with a price target of $280. He warned that expectations of the firm’s AI plans are still hyped. He continues, “As Tesla continues to pursue ambitious AI goals via an exceedingly aggressive capex timeline, we weigh severe caution on the speed of its AI progress ramp — and the significantly high bar already embedded in the stock’s valuation.”

The stock valuation for Tesla stands at 151 times the company’s expected earnings over the next year, which makes it the priciest of the Magnificent 7 tech stocks. Despite such a premium, it’s the group’s poorest performer this year. After falling on Thursday, Tesla stocks are off by nearly 30% from their yearly highs, giving bearish investors about $8.92 billion in paper gains.

What Do Experts Say About Tesla?

Tesla’s spending on AI has also sparked controversy. Some Tesla investors believe that the company is not investing enough heavily enough into its robotaxi and humanoid robot projects.

They compared Elon Musk’s firm to several large technology companies have been criticized for investing heavily in AI projects that are not always yielding the desired results. Meanwhile, declining auto profit margins have prompted questions as to whether its core auto business will help fund those long-term investments.

Tesla also has the highest short interest amongst the Magnificent Seven stocks. In contrast, Meta Platforms has the second-lowest percentage with just 1.6% of its float being sold short.

However, not all investors are turning negative. On Thursday, retail investors bought $42 million in shares of Tesla, making it the most purchased stock on Vanda Research’s list, according to the data.

Buoyed by the pullback, though, Morningstar analyst Seth Goldstein stated “For long-term investors, we view the pullback as a good opportunity.” Goldstein has given the Elon Musk’s Tesla stock a fair value of $450. Furthermore, now, the market is pricing in massive odds for Tesla-SpaceX merger.

SpaceX Short Interest Outpaces TSLA

In the interim, bearish wagers against SpaceX also have proven profitable, which has even surpassed the profits made by Tesla short sellers. Investors who are shorting the stock have seen an estimated $15.5 billion in paper profits since the company went public in mid-June, according to Ortex Technologies.

The SpaceX stock is trading much lower than the $135 per-share IPO price despite hitting a record high of $225.64. The stock reached a new low on Wednesday of $115.26. About 360 million shares, or about 56% of the firm’s free-float shares, were on loan as of Tuesday, according to Ortex data.

Ortex co-founder Peter Hillerberg said, “There is no sign of short sellers taking profits on SpaceX.” He added, “If anything they are leaning in harder.”

In response to the widespread short selling interest, Elon Musk fiercely responded on X last Friday. At the time, he wrote, “The survival probability of firms who maintain a significant short position in SpaceX over time is very low.”

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