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Tesla Motors Inc (TSLA): Interesting Short Behavior Around This Automaker

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Tesla Motors Inc (NASDAQ:TSLA) wasn’t supposed to post a profit or beat delivery expectations. Then it reported that it did both. Over the next several days, a wave of buying caused by both bullish investors and covering shorts sent the stock from the $50 range well into the $80 range before the share price eventually topped $100 a share in late May. Through this, many shorts were squeezed out in a classic “short squeeze” scenario. But are shorts coming back to Tesla? Let’s look at data from NASDAQ.com to find out.

A short story

Tesla Motors Inc (NASDAQ:TSLA)Tesla Motors Inc (NASDAQ:TSLA) shorts got burned badly; especially the ones who held their shares through the Q1 earnings call. Looking at the data below, we can see that some shorts were already covering the positions in the month before the announcement. At the beginning of April, Tesla CEO Elon Musk told the public that Tesla would be profitable for Q1 and raised the number of expected deliveries.

This announcement drove some shorts away and their departure helped the stock to break the $40 level that had restrained upward movement for so long. With this level broken and more positive sentiment for Tesla, shares managed to climb into the $50 range before the announcement.

What happened from there is short squeeze history as the rate of covering shorts skyrocketed causing the share price to follow. Musk’s “tsunami of hurt” prediction for shorts came true and Tesla Motors Inc (NASDAQ:TSLA) even used the opportunity of the higher share price to raise capital in favorable conditions to have more spare cash and to pay off the Department of Energy loan.

Return of the shorts

In most short squeeze scenarios, the share price quickly surges before falling back down to earth in the following days or weeks. However, Tesla shares did not drop right back after the squeeze; in fact, they are near record highs as of this writing. Below is the NASDAQ’s data for Tesla’s short interest.

Settlement date Short interest
Jun. 28 19.8 million
Jun. 14 19.9 million
May 31 18.6 million
May 15 23.0 million
Apr. 30 27.5 million
Apr. 15 30.7 million
Mar. 28 31.3 million

Source: Nasdaq.com

We can see the sharp drop in shorts between Apr. 30 and May 15 as the announcement was made and the big squeeze began. And we can also see another drop between May 15 and May 30 and the share price continued to surge. However the share price has remained elevated, most of the time above $100, since the short squeeze bottomed out around the end of May.

The most likely reason for the share price to have remained this high, is there’s a significant number of new buyers for Tesla Motors Inc (NASDAQ:TSLA), even at this higher price. Despite the short interest actually increasing by over one million shares between May 31 and Jun. 14, the share price held its higher levels.

It seems that even as the short interest is slowly rising again, the market actually values Tesla Motors Inc (NASDAQ:TSLA) at its higher level. While there’s a whole series of fundamentals vs. growth potential arguments to be made over whether the current price actually is reasonable, short interest data clearly shows that the current price is market value driven, not temporary short squeeze powered.

Another sustained post-squeeze price

In April, I wrote an article which argued for the possibility that Tesla Motors Inc (NASDAQ:TSLA) would experience a short squeeze similar to that of Netflix, Inc. (NASDAQ:NFLX). As both a writer and a Tesla shareholder, I am quite pleased that the prediction came true and I do count it among by better ones. But the article from April did not address the many possibilities of what would happen after the squeeze. After all, it was more about whether the squeeze would happen than what the aftermath would be.

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