Case Study of a Short: TESLA – A Win-Win for Securities Lenders

Electric Car

Tesla Motors has been a long-term focus name for both long and short investors since the firm’s 2010 IPO. Bearish sentiment has surrounded TSLA since its public debut, but there is also an important story to be told for long-holders.

Tesla Motors (TSLA), the world’s preeminent designer and manufacturer of high-performance electric vehicles, has been a long-term focus name for both long and short investors since the firm’s 2010 IPO. Markit recently reported that more than 25% of all Tesla shares were out on loan, an all-time high for the company. They went on to report that TSLA was the most shorted carmaker worldwide, ahead of their Model 3 unveiling amid concerns over profitability, ability to meet production expectations, growth opportunities in China, and battery related fires. Fees to borrow TSLA have ranged from 50bps to as high as 9,000bps from 2013 to 2016.

This has not deterred those investors excited by the Tesla story though, with its share price rallying from an IPO price of $17 to more than $265 in April 2016. The stock gave back some of those gains following the firm’s recent secondary share offering, but many bulls find the offering itself an encouraging sign and expect the release of the Model 3 to be a positive development for the company.

A result of the contrasting opinions of Tesla’s future has been the returns captured by long holders from lending their positions to short sellers, in addition to the gains from the core share price increase. During the past 90 days, TSLA has generated an additional return of almost 100bps for long holders from the securities lending market.

TSLA can be a divisive name in the market – everyone seems to have an opinion. This is good news for lenders who have faith in the company’s business model and can pick up additional incremental revenue on their holding.


Image source: Bloomberg

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