This content is from: Portfolio
Tesla Short Sellers Remain Optimistic Despite Musk’s SEC Settlement
Tesla is still a popular short bet, even with the company's chief executive officer Elon Musk settling charges brought against him by the SEC, market observers said.
Short sellers were unruffled Monday after learning that Tesla’s chief executive officer, Elon Musk, has agreed to settle the charges brought against him last Thursday by the Securities Exchange Commission.
Tesla’s stock plummeted 16 percent following the SEC’s announcement, but the shares have since regained all of the ground they lost.
On Thursday, the SEC announced that it was charging Musk with securities fraud over his now-infamous tweets about how he was considering taking Tesla private and that he had “funding secured” to do so.
“Bearish speculators booked a one-day paper profit of approximately $1.4 billion on the back of Friday’s price action,” said Matthew Unterman, director at S3 Partners, a financial analytics company, via email Monday.
According to Unterman, S3 estimates that 33.52 million Tesla shares — roughly 26 percent of the float — were short as of Monday. And while short sellers did not hold onto gains made last week, Unterman said via email that Tesla is still a popular short.
“We are seeing financing rates for Tesla borrow trending more expensive today, which indicates continued demand for shorting even after SEC settlement news,” Unterman said via email Monday.
Among those short-sellers are David Einhorn’s Greenlight Capital, Jim Chanos’ Kynikos Associates, Anthony Bozzo’s Lakewood Capital, and Nathaniel August’s Mangrove Partners, previous reporting from Institutional Investor shows.
Mark Spiegel, head of hedge fund firm Stanphyl Capital and a vocal Tesla short-seller, was upbeat Monday, despite a tough day for his portfolio.
“No one that I know has been short this company based solely or even in part on that particular SEC case,” Spiegel said by phone.
According to Spiegel, Stanphyl gained roughly 9.25 percent during September. However, the firm is still down roughly 9 percent for the year, he added. “We’re getting slammed today,” Spiegel said.
[II Deep Dive: SEC Sues Elon Musk Over Misleading Tweets About Tesla]
Musk, for his part, has agreed to step down as Tesla’s chairman, although he will remain on the board. Musk and Tesla each will pay $20 million in penalties. According to an announcement from the SEC, the $40 million will be distributed to harmed investors under a court-approved process.
As a part of the settlement, Tesla will appoint two new independent directors to its board and will establish a committee to oversee Musk’s communications. A spokesperson for Tesla declined to comment on the news.
“Elon Musk is an amazing stock promoter but a horrible corporate executive,” Spiegel said. “This settlement forces him to be only a corporate executive.”
Spiegel said the SEC actions have been “a fun sideshow,” but he remained convinced that eventually, Tesla’s fortune will fade. The shares closed at $310.70 on Monday, a gain of more than 17 percent.