Elon Musk has last laugh in battle against Telsa short sellers

As if Elon Musk wasn't already having a good day.

With Tesla's surprise quarterly profit pushing shares to an eight-month high, the automaker's CEO is finally making good on his May 2018 warning to investors who bet against the company, when he infamously tweeted the "short burn of the century" was imminent.

It may have taken longer than he expected, but Tesla's surge Thursday hit short sellers with about US$1.36 billion (NZ$2.13 billion) in mark-to-market losses, according to S3 Partners' Ihor Dusaniwsky. That's enough to erase about 70 per cent of the US$2 billion in profits they'd accumulated this year.

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The stock gained as much as 20 per cent as the market opened to US$304.93, its highest intraday price since March 1, before paring gains to 16 per cent. Tesla shares had lost 24 per cent since the beginning of the year before Thursday's rally.

It's a sharp turnabout for the bears, who in August had the most profitable short among US stocks, at US$2.75 billion in mark-to-market gains, more than triple the profits for pessimistic calls against Abbvie Inc., the second-best short play at the time. Bearish bets on Tesla had amounted to profits of about US$5.16 billion in June, when the stock slumped to a three-year low.

Short interest in Tesla has come down from its September peak, but still represents about 23 per cent of the float, or about US$8.1 billion in notional value, according to S3. Short positions in about 1.53 million shares were covered in the week leading up to the earnings, as bears anticipated strong earnings based after Tesla reported record third-quarter deliveries earlier this month.

"We are expecting more short covering and the continuation of this long-term short squeeze as Tesla's stock price continues to show strength," S3's Dusaniwsky wrote Thursday. "Tesla shorts may, in reality, be truly bifurcated: the older shorts with more conviction and staying power and the newer shorts who are more momentum-based, more willing to exit a losing position."

- Bloomberg