Tesla Bulls double as stocks hit new heights

Tesla’s run has been so powerful that many bearish investors have abandoned their money-losing bets, pushing short positions on the stocks to record lows. Short-term interest rates in the stock as a percentage of available-for-trading stocks have recently fallen to a low of 5%, from about 18% earlier this year, data from IHS Markit shows.

Since Tesla went public a decade ago, its market value has soared to $ 659 billion to become the sixth largest company in the U.S. market. Tesla is by far the largest company ever added to the S&P 500; its market value rose even before delivering four consecutive quarters of earnings to make it eligible for withdrawal.

Tesla bulls say the company’s potential is limitless and they are buying even more stock as stocks soar to new highs.

“There is so much good news to come,” said Rostislav Zotin, a 44-year-old business engineer who says he has been buying Tesla stock regularly since 2013, adding additional income to the investment. He pointed to Chief Executive Elon Musk’s ability to innovate and his promise of an on-demand robot taxi fleet. “I would recommend buying Tesla at any price,” he added.

After purchasing a black Tesla Model 3 in September – which he had longed for – Mr. Zotin said he bought five shares for about $ 568 each in early December and continued to buy later in the month. The stock closed at $ 695 Friday. At times, he said, his wife has wondered if they should send the money to a house instead. They rent an apartment in Schwerzenbach, Switzerland, a small town near Zurich.

He’s glad he held on. Mr. Zotin and other investors acknowledge that Tesla stock has been a volatile ride, but right now they are reaping the rewards.

“This allows me to retire a few years earlier,” said Dave Martin, a 67-year-old engineer living in Mendocino County, California, who reads about Tesla for a few hours a day. He has been an investor since 2014 and has raised even more shares this month and said he rarely pays out. An exception was when he recently bought a white Tesla Model Y SUV.

Bullish investors said they expect Tesla to bring electric vehicles to the masses, and many are comparing the company to Apple Inc.,

reshaping the PC, mobile phone and music industries while outperforming the broader stock market.

“I feel like S&P needs Tesla more than Tesla S&P,” said Vincent Yu of Irvine, California, who owns an auto parts business and runs a blog about Tesla. Mr. Yu, 41, said he invested in the stock in 2013 and has since added to his holdings, closing positions in tech giants like Amazon.com. Inc.

and Apple.

He pointed to the Nasdaq Composite – which includes Tesla and is up 42% this year – compared to the S&P 500’s 15% gain.

His dedication is so strong that in addition to two Tesla cars, he also bought eight bottles of Tesla Tequila which were marketed this year on the automaker’s website for $ 250 each before they sold out. Fans say the souvenirs are a nod to Mr. Musk’s tweet on April Fools’ Day in 2018, when he joked that the automaker was bankrupt and he was “found unconscious to a Tesla Model 3 surrounded by ‘Teslaquilla’ bottles. “

Musk often engages with skeptics on Twitter. Ahead of that 2018 tweet, investors were concerned about the company’s cash levels and its credit rating had been downgraded. Since then, the share has increased by 1.276%. Tesla ended the third quarter with approximately $ 14.5 billion in cash, and S&P Global Inc. Thursday boosted the company’s credit rating.

James Anderson, a partner at investment firm Baillie Gifford, Tesla’s third-largest institutional shareholder, said almost daily criticism and doubt of Tesla by short sellers and other detractors used to be frustrating.

Baillie Gifford ignored naysayers and insisted on his belief that Tesla would eventually grow into more than a car company, noting his efforts to expand the use of high-powered batteries, solar power, and autonomous driving. The initial investment of $ 89 million in 2013 exploded to $ 21.6 billion, excluding any proceeds from recent stock sales.

The trajectory so far is consistent with a bold vision that Mr. Musk initially set out to Baillie Gifford executives when they first met. “He said one sentence: ‘There is a small but growing chance that Tesla could be the largest company in the world,’” recalls Mr. Anderson.

Mr. Musk and the wealth of his investors have translated into great losses for others. As Tesla’s market value has risen, the controversy surrounding the stock has only intensified.

Tesla’s polarizing nature has turned the company into one of the largest casinos on Wall Street. The options market associated with Tesla has grown, with more than half a trillion dollars in recently outstanding contracts, making Tesla the most popular bet on a company ever, according to Henry Schwartz, senior director at Cboe Global Markets.

While short-term interest rates on stocks have declined this year, Tesla remains a popular bearish bet. Short bets total $ 32 billion, confirming Tesla’s status as the most short-circuited stock in history, according to S3 Partners LLC. The shorts took $ 39 billion in losses this year, forcing some to surrender.

“It’s insane to be short on something that quadruples,” said John Hempton, the founder of Bronte Capital, an Australian hedge fund that oversees approximately $ 1 billion in assets. He closed his position earlier this year ahead of a stock split in August. “The valuation is absurd. But the keepers are insane too. “

He said he might consider taking a new bearish position after the stock enters the S&P 500.

Some traders predict a big drop in the stock once it is added to the index and the initial wave of demand from passive investors dissipates.

Among them is David Einhorn, whose hedge fund company, Greenlight Capital Inc., recently held about $ 14 million in bearish put options to Tesla, according to the Securities and Exchange Commission filings.

Tesla’s stock was up 99% in the third quarter, while Mr. Einhorn returned 5.9%, according to a quarterly letter from The Wall Street Journal. Earlier this year, Greenlight Capital questioned Tesla’s accounting practices in a separate update and pointed out product defects.

“We expect the TSLA parabola to end around the specified entry in the prestigious S&P 500 index,” Greenlight wrote.

Write to Gunjan Banerji at [email protected] and Michael Wursthorn at [email protected]