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UPDATE: Tesla's roaring start to 2018 is costing short sellers $1 billion

6:50 am ET January 19, 2018 (MarketWatch)
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By Claudia Assis, MarketWatch

Tesla is the third most shorted stock globally, says financial analytics firm S3

Tesla Inc.'s roaring start to the year has left short sellers about $1 billion in the red.

Tesla (TSLA) shares overcame steep losses and a rocky late 2017, when the Silicon Valley car maker was beset by doubts about its ability to produce the Model 3 in larger numbers, to rise more than 12% so far this month. That compares with a 4.6% gain for the S&P 500 index.

Short interest in Tesla stock-- money betting on a stock decline--is around $10.88 billion currently, said Matthew Unterman, a director at S3 Partners (https://www.s3partners.net/), a financial analytics company that has access to and tracks real-time short interest data. That would peg Tesla's short interest at 23.5% of the free float, he said.

S3 Partners calculate that Tesla short sellers have a mark-to-market loss of around $1.1 billion since the start of the year. Tesla is, by a wide margin, the No. 1 short stock in terms of money at risk and exposure within the global auto industry, with General Motors Co. (GM) second with $1.71 billion at risk.

Read more:Short sellers not evil, but they are misunderstood (http://www.marketwatch.com/story/short-sellers-are-not-evil-but-they-are-misunderstood-2017-11-08)

Tesla is the third largest worldwide short, behind Alibaba Group's (BABA) $22.9 billion and Ping An Insurance's (2318.HK) $16.5 billion. Apple Inc. (AAPL) and AT &T Inc.(T) round up the top 5 list, with shorts of around $7.9 billion and $6.6 billion, according to S3 Partners.

For 2017, short sellers had a mark-to-market loss on Tesla of $3.57 billion, on an average short position of $9.42 billion, S3 Partners said.

Tesla shares have gained 6.2% in the week ended Jan. 12 and 1.7% in the week ended Jan. 5. They are poised to end this week with gains of around 4%.

Tesla earlier in January rolled back for a second time its Model 3 production targets (http://www.marketwatch.com/story/tesla-pushes-back-model-3-production-target-as-fourth-quarter-deliveries-fall-short-2018-01-03) and reported fourth-quarter deliveries that were below expectations.

The company said it expects to reach a production rate of 5,000 Model 3 sedans a week by the end of the second quarter. Tesla had said it would ramp up production to 5,000 sedans a week in 2017 and then on to 10,000 a week in 2018, but pushed back its 2017 goal to late in the first quarter of 2018, putting pressure on the company's cash position.

At the time of the delivery numbers however, Tesla made efforts to assure Wall Street it had made "major progress" addressing the Model 3 "production bottlenecks" it first disclosed in October. Major investment banks have kept their ratings on the stock unchanged (http://www.marketwatch.com/story/tesla-rolls-back-model-3-production-target-but-wall-street-keeps-the-faith-2018-01-04).

Short sellers essentially bet a stock price will drop, and are often derided as when they make money, usually most everyone else is losing.

Related:Opinion: Why you should never short-sell stocks (http://www.marketwatch.com/story/why-you-should-never-short-sell-stocks-2015-11-19)

A "short" sale happens when investors sell a stock before they own it, with the expectation that they can buy it later at a lower price and pocket the difference. To sell a stock they don't own, however, the seller first borrows the stock from someone who is "long," meaning someone holding the stock with the expectation of selling it later at a higher price.

Earlier this week, GM and Ford Motor Co. (F) announced their profit expectations for this year and preliminary numbers for 2017.

Ford painted a gloomy picture of its 2018 profit expectations and posted preliminary 2017 profit that fell short, and Ford shares closed at their lowest in nearly two months (http://www.marketwatch.com/story/ford-shares-sink-to-their-lowest-level-in-nearly-two-months-2018-01-17)on Wednesday. The shares traded at their lowest since mid November on Thursday, adding to losses around 3% in the 12 months to date.

GM forecast 2017 profits at the high end of its expectations and said it expects "strong earnings" this year. (http://www.marketwatch.com/story/gm-shares-at-three-month-high-after-companys-guidance-2018-01-16)The stock has gained 17% in the last 12 months.

Tesla shares have gained 46% in the past 12 months, while the S&P has risen 23% and the Dow Jones Industrials 31% in the same period.

-Claudia Assis; 415-439-6400; [e-mail]

(END) Dow Jones Newswires

January 19, 2018 06:50 ET (11:50 GMT)

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