Tesla is the most shorted auto stock. Rivian, Ford are numbers two and three.
The UAW is asking Ford Motor Co. and two other automakers with roots in Detroit for big pay raises and a four-day work week. These orders threaten to upend the industry’s cost structures, giving non-union EV makers a leg up.
A new report from short-selling research firm S3 Partners shows how much money is being bet against auto stocks.
Short sellers will borrow shares they don’t own and sell them, hoping the price will fall and they can buy them back later at a lower price. Short selling is a bearish bet.
Short sellers borrowed and sold Tesla (ticker: TSLA) shares worth about $22 billion, according to S3. That’s about 10 times the amount of the second-largest vehicle inventory in major shortage, Rivian Automotive (RIVN). Ford (F) is the third largest short with $1.9 billion borrowed and sold by bears.
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The other two companies that make Detroit-Three cars, General Motors (GM) and Stellantis (STLA), reached numbers seven and 10 on the list of most deficient companies.
Why the Bears like Tesla as a shortstop is no mystery. Shares trade at about 58 times estimated 2024 earnings. the
Standard & Poor’s 500
Literals for about 18.4 times. Ford trades at about 6.6 times equity. High valuations, whether on an absolute basis or relative to other companies in the industry, are often the starting point for bearish investors.
The total amount of funds borrowed and sold is one measure of short selling activity. It’s a good one. It represents the extent of short sellers’ exposure to risk. Another measure is the amount of shares sold short compared to the total amount of shares available for trading. This number is commonly referred to as the short interest.
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Nearly 3% of Tesla shares available for short trading were sold. The average short interest for stocks in the S&P 500 is about 2%. Tesla’s short interest isn’t much higher than average, but it can’t be very high at all. Tesla’s market value is about $830 billion. Short sellers don’t have a lot of capital available.
The short interest for Ford, GM, and Stellantis is approximately 4%, 2%, and 2%, respectively. Even with the UAW strike, average short interest is not high relative to traditional automakers’ stocks.
Short interest in electric vehicle startups is the highest among auto stocks. Fisker’s short interest (FSR) is 43%. This is the highest according to S3. Lucid (LCID) is number two on this scale with a short interest of 23%. Nikola (NKLA) and Raven come in at about 21% and 13%, respectively.
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Fisker, Lucid, Nikola, and Rivian aren’t making money yet, nor are they generating free cash flow. The pessimistic attitude of investors shows that they do not believe that all electric car startups will succeed.
High short interest can lead to a lot of trading volatility. A short squeeze basically occurs when all the short sellers rush in to cover bearish bets at once, causing the stock price to rise much higher than what would be expected based on fundamentals alone.
For example, Nikola stock rose about 34% on Monday;
Nasdaq Composite
It was flat and the S&P 500 rose just 0.1%. Furthermore, shares are up about 80% over the past five days. After that period, the company announced a new chief operating officer and said it would begin delivering its fuel cell trucks within a few weeks. Both are positive things, but 80% is a big step.
Write to Al Root at allen.root@dowjones.com
(Tags for translation) Automotive
