It has never been easier to short Tesla
November 29, 2018

Speed read courtesy of IHS Markit: Borrowed shares have declined by 7 million shares in November. Shares available at post-IPO peak 16 million shares. Borrow fee at GC level for first time in over five years. Cost for short credit exposure at YTD low ​

The first eight years of the Tesla short have not gone exactly to plan for the bear camp, notes IHS Markit. During that time, short sellers have paid above GC (general collateral) borrow fees while the share price has trended higher with significant volatility. That appears to be changing, at least the borrow cost part. 

Since the start of November, the number of TSLA shares borrowed has declined by 6.9m shares to a year-to-date low of 22.4m. The exchange short interest number which was released Tuesday night, pertaining to November 15, came in at 28.8 million shares, revealing a reduction of 1.1 million shares during the first two weeks of the month. IHS Markit's short interest forecast model suggests that the total short interest fell a further 1.5 million shares over the last two weeks of November, to 27.9 million, the lowest level since March.

Lenders are reporting 16 million shares as currently available to borrow, equating to US$5.4 billion; both figures are a post-IPO high for the stock. The total size of the lendable pool, including shares already lent out, has been consistently in the range of 30-31 million shares since the start of November, so recent securities lending availability increase is purely the result of existing borrows being returned. 

The increased availability has eased borrow rates, which are GC, ie easy to borrow, for the first time since briefly dipping in late 2013 and early 2014. Since March 2014, it has never been cheaper to short TSLA equity and there has never been this much available capacity at any cost, says IHS Markit. 

The most expensive borrow costs recorded for Tesla were shortly following IPO in 2010 when average rate for all borrows briefly eclipsed 80 percent, annualized. More memorable, painfully for short sellers, was the borrow constraint surrounding the Solar City acquisition in September 2016, when the average borrow fee was over 40 percent for existing short positions and the marginal cost for new borrows touched 90 percent.

The pricing for short exposure to Tesla credits has also declined. After peaking above 500bps ahead of Q2 earnings in August, the cost to borrow the 5.3 percent 2025 bond has declined by more than 50 percent. The further reduction in borrow fee since then has been driven by increasing supply from beneficial owners, who have added $85 million par value to lending programs since the low point observed in mid-February.

Taken together the reduction in equity demand combined with increased supply on the credit side have driven a reduction in the cost of placing bets against the future of the electric auto-maker across the capital structure.

Given the Q3 earnings results, and the market reaction to them, it's no surprise that bears have reduced the position on the margin and that some investors have positioned themselves to benefit from further short covering and continued enthusiasm from the firm's investor base.

While the share price has bounced 39 percent off the YTD low, and is only 15 percent below the all-time-high observed in June 2017, bears can at least enjoy a lower cost of admission to the short trade, for the time being. With a current short balance of $9.9 billion the bearish sentiment is still significant and the lower carrying cost makes the position easier to manage for short sellers heading into 2019.





This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across globalcustody.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

Speed read courtesy of IHS Markit: Borrowed shares have declined by 7 million shares in November. Shares available at post-IPO peak 16 million shares. Borrow fee at GC level for first time in over five years. Cost for short credit exposure at YTD low ​

The first eight years of the Tesla short have not gone exactly to plan for the bear camp, notes IHS Markit. During that time, short sellers have paid above GC (general collateral) borrow fees while the share price has trended higher with significant volatility. That appears to be changing, at least the borrow cost part. 

Since the start of November, the number of TSLA shares borrowed has declined by 6.9m shares to a year-to-date low of 22.4m. The exchange short interest number which was released Tuesday night, pertaining to November 15, came in at 28.8 million shares, revealing a reduction of 1.1 million shares during the first two weeks of the month. IHS Markit's short interest forecast model suggests that the total short interest fell a further 1.5 million shares over the last two weeks of November, to 27.9 million, the lowest level since March.

Lenders are reporting 16 million shares as currently available to borrow, equating to US$5.4 billion; both figures are a post-IPO high for the stock. The total size of the lendable pool, including shares already lent out, has been consistently in the range of 30-31 million shares since the start of November, so recent securities lending availability increase is purely the result of existing borrows being returned. 

The increased availability has eased borrow rates, which are GC, ie easy to borrow, for the first time since briefly dipping in late 2013 and early 2014. Since March 2014, it has never been cheaper to short TSLA equity and there has never been this much available capacity at any cost, says IHS Markit. 

The most expensive borrow costs recorded for Tesla were shortly following IPO in 2010 when average rate for all borrows briefly eclipsed 80 percent, annualized. More memorable, painfully for short sellers, was the borrow constraint surrounding the Solar City acquisition in September 2016, when the average borrow fee was over 40 percent for existing short positions and the marginal cost for new borrows touched 90 percent.

The pricing for short exposure to Tesla credits has also declined. After peaking above 500bps ahead of Q2 earnings in August, the cost to borrow the 5.3 percent 2025 bond has declined by more than 50 percent. The further reduction in borrow fee since then has been driven by increasing supply from beneficial owners, who have added $85 million par value to lending programs since the low point observed in mid-February.

Taken together the reduction in equity demand combined with increased supply on the credit side have driven a reduction in the cost of placing bets against the future of the electric auto-maker across the capital structure.

Given the Q3 earnings results, and the market reaction to them, it's no surprise that bears have reduced the position on the margin and that some investors have positioned themselves to benefit from further short covering and continued enthusiasm from the firm's investor base.

While the share price has bounced 39 percent off the YTD low, and is only 15 percent below the all-time-high observed in June 2017, bears can at least enjoy a lower cost of admission to the short trade, for the time being. With a current short balance of $9.9 billion the bearish sentiment is still significant and the lower carrying cost makes the position easier to manage for short sellers heading into 2019.



Free subscription - selected news and optional newsletter
Premium subscription
  • All latest news
  • Latest special reports
  • Your choice of newsletter timing and topics
Full-access magazine subscription
  • 7-year archive of news
  • All past special reports
  • Newsletter with your choice of timing and topics
  • Access to more content across the site