GameStop gained notoriety this year after commentators on the Reddit forum r / wallstreetbets helped make the stock of the struggling video game store nearly tenfold in one week. The Reddit crowd tried to combat huge interest in GameStop through short sellers, who borrowed and sold shares in the hope of buying them back at a lower price later and making a profit.
If the price of a stock rises, investors who have cut it short are likely to incur unlimited losses, and GameStop’s irrational rally has forced those betting on the stock to cover their losses. At least one hedge fund, Melvin Capital, lost 53% of its fund in January alone, requiring $ 2.8 billion in emergency rescue, while several others lost between 10% and 30%. Since then, GameStop has become a short example for short investors who get a little pressure to cover their losses.
But before GameStop, there was Tesla. According to S3 Partners, a financial technology and analysis firm, the electric carmaker has been the biggest target – and the most painful investor – of investors since at least 2010. Between 2017 and 2021, investors who are short of Tesla will lose $ 52 billion; if we go back to 2010, that number is closer to $ 57 billion. GameStop short sellers, on the other hand, lost an estimated $ 9 billion, according to data from US exchanges analyzed by S3.
This makes Tesla, according to Ihor Dusaniwsky, managing director of S3 Partners, the weakest domestic short trade for the past decade or more. Tesla’s share price has risen 15 times since 2017.
But that has hardly dampened investors’ appetite for action against Tesla. The electric carmaker remains one of the world’s short-selling companies with $ 39 billion in open short positions (the value of shares sold short with positions not yet closed or covered), accounting for 6% of total shares trades (down from 20% in 2020). That’s three times more than short positions against Apple, its closest competitor.
There’s a saying in Silicon Valley that is popularized by fellow billionaire Peter Thiel: “Never bet against Elon Musk,” Tesla CEO. But for Wall Street, there is always money to be made (and lost) against Tesla’s success.