When Elon Musk ran a poll on Twitter this past weekend asking if he should step down as CEO of the social media company amidst a storm of controversy, short sellers weren’t sure whether to applaud — or cry.
One Tesla shortseller, who goes by @MidwestHedgie on the social media site, posted a cartoon of a man wiping a sweating brow. The caption: “When you still kind of value Twitter, but are short $TSLA.”
Musk’s woes at Twitter, for which he paid $44 billion, have proved a godsend to the short sellers of Tesla, the electric car company that is the source of Musk’s iconic stature and which comprised the bulk of the wealth used to buy Twitter. Partially as a result, Tesla shares have sunk, making it the most profitable short in the market this year, according to S3Partners’ Ihor Dusaniwsky.
Dusaniwsky said that Tesla shorts have made $15.03 billion on a marked to market basis in 2022, for a 78 percent gain. In December alone they are up $4.54 billion. (Average Tesla short interest is $19 billion, which is still only 3 percent of the float.)
This year is the first one since 2015 that Tesla shares are ending the year in the red — at least in part because Musk has sold $40 billion in Tesla stock over the past 13 months. Some $7 billion of that has been sold since October 27 when he took over Twitter, his latest — and deeply troubled — venture.
Tesla stock has lost about a third of its value since Musk completed the purchase. This has led Tesla shareholders to complain bitterly, saying Musk should get off Twitter and get back to business at Tesla. “Elon has now erased $600 billion of Tesla wealth and still nothing from the Tesla [board of directors]. It’s wholly unacceptable,” tweeted Ross Gerber, an investor in both Tesla and Twitter.
“I’m a @Tesla investor and I want @elonmusk to get off @Twitter,” wrote Joe Circione.
Senator Elizabeth Warren has added fuel to the fire, recently writing a letter to the chairman of Tesla’s board saying that Musk’s purchase of Twitter has involved misappropriation of Tesla resources and serious conflicts of interest that may violate the law. Musk has taken executives from Tesla to help him remake Twitter, which is struggling under the $13 billion debt load it incurred for his purchase of the company.
Wall Street analysts are also getting worried that the Twitter controversy is hurting Tesla’s brand equity. Oppenheimer analyst Colin Rusch downgraded Tesla Monday, citing risks related to Elon Musk’s role running Twitter. Musk’s ban of several journalists — who have since been reinstated — appears to have been the tipping point for him.
“The combination of Twitter’s unclear cash needs and diminishing options for Mr. Musk to serve those needs amid the broad public backlash driven by inconsistent standards application for Twitter users, notably banning select journalists, is pushing us to the sidelines on TSLA,” Rusch said in a note to clients. “We believe [increasingly] negative sentiment on Twitter could linger long term, limiting its financial performance and [becoming] an ongoing overhang on TSLA.”
He added that there is the “potential for a negative feedback loop from the departure of Twitter advertisers and users.” On Twitter, as Musk’s actions gathered fury, a number of individuals posted that they were canceling plans to purchase Teslas, while others said they would never buy one because of Musk’s behavior.
Short sellers say that Tesla is still overvalued, especially going into a recession. While the stock now trades around $139 per share, that is after a 15-for one stock split. Without the split, Tesla would still be valued above $2,000 per share, compared with the $420 per share that Musk mentioned in his infamous “funding secured” tweet regarding the price Tesla would fetch if it went private during the summer of 2018.
Since Musk announced his Twitter bid on April 14, short sellers have “hit overdrive” with 8.18 million shares of additional short selling worth $1.13 billion — an 11 percent increase, Dusaniwsky said.
So far, the Tesla short sellers’ fears that Musk would resign as Twitter CEO and return his focus to Tesla haven’t materialized. Even though a majority of Twitter users voted for him to resign, Musk has not found a new CEO for Twitter, and Tesla shares have continued their descent.
In 2022, the electric car company’s shares have fallen more than 60 percent. They are down more than 7 percent this week.
