Elon Musk’s announcement that he is planning to take Tesla private sent a shockwave to the market that could destroy the positions of many people betting against the company. However, a report shows that they are sticking around while Tesla’s board announced that they have been evaluating the possibility of going private over the last week.
As we reported yesterday, getting rid of the Tesla shorts is part of Musk’s thought process about taking the company private.
“Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
As of the last report, the short position on Tesla was worth over $12 billion. If the company goes private, the shorts will have to cover their position and with Tesla’s stock rising as Musk plans to go private at $420 per share (significantly higher than the current trading value), the shorts would lose a lot of money.
Ihor Dusaniwsky, an analyst at S3 Partners, a financial technology and analytics firm following short interest on Tesla’s stock, said that the shorts have already lost over $3 billion on paper with their position on the automaker this year:
“The $12.8 billion of Tesla shorts, who were down $2.6 million in mark-to-market losses this year, have taken another body blow to the ribs today. With Tesla at $384.50/share, shorts are down -$1.49 billion in mark-to-market losses today, bringing August losses to -$3.0 billion, year-to-date losses to -$3.2 billion and losses since 2016 to -$6.6 billion.”
Dusaniwsky says that the shorts are not giving up yet, but he sees a short squeeze happening if plans to go private move forward:
“Surprisingly, with Tesla’s stock price up 29% since their August earnings report, shares shorted has not decreased appreciably, down only 316k shares or less than 1%. Even after incurring over $1.5 billion in mark-to-market losses in August, short sellers have kept their positions and conviction. If Elon Musk does take Tesla private at $420/share we might actually see a short squeeze in Tesla shares, the Teflon Short can only take so much punishment before it gives in.”
It might look like Musk’s announcement was on a whim with his Twitter comments coming first and then an email to employees. But he has been mulling it for years and Tesla’s board confirmed in a press release today that the CEO brought it up to them last week.
“Last week, Elon opened a discussion with the board about taking the company private. This included discussion as to how being private could better serve Tesla’s long-term interests, and also addressed the funding for this to occur. The board has met several times over the last week and is taking the appropriate next steps to evaluate this.”
In order for the move to actually happen, Tesla would need to take it to a vote with the shareholders. Musk’s plan would be to give shareholders a choice to either get out at $420 or stay a Tesla shareholder through a private fund where shares will be reevaluated every 6 months with a possibility to get out.
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