Tesla has certainly been one of the most popular stocks of this bull market, and this has allowed its stock to reach a very high valuation. With the recent news, and PR pressure surrounding Tesla and Elon Musk, some investors think that Tesla stock might drop. But how to short Tesla stock? And which way is the best?
In this guide, we will go over some of the reasons why any investor would consider shorting Tesla, and explain in detail how to short Tesla stock.
Can Tesla stock be shorted?
Yes, Tesla stock can be shorted as long as you can find a broker that is able to lend you shares, and you have a margin account you will be able to short Tesla stock. However, some investors are looking for other ways to get short exposure to Tesla’s stock, namely through options.
Since Tesla stock tends to be extremely volatile, there are other ways to profit if the stock collapses than just shorting it.
But why are investors shorting Tesla stock?
Reasons to short Tesla stock
Tesla has certainly been one of the most interesting and innovative companies over the last few years. While trying to disrupt a traditional industry like the auto, with very large and well-established companies can be difficult, Tesla has also found a lot of criticism from several high-profile investors.
Lately, the company has been battling a negative PR campaign against its CEO, Elon Musk, and other allegations against the company. Let’s look at some of the reasons that Tesla stock has been performing poorly, and why you would want to short it:
New York Times Tesla documentary
The New York Times recently released a documentary criticizing one of the most controversial aspects of Tesla - autopilot. One of the reasons Tesa’s valuation has remained so high is the possibility of creating a fleet of Teslas with autopilot.
Despite the skepticism of many people including experts in the field, Elon Musk has constantly touted Tesla’s technology and development of the autopilot functionality. However, we are seeing that these developments will not be able to benefit the company in the short to medium-term.
There is still a lot of skepticism surrounding the autopilot features, and their possible consequences for consumers. Because this is still a very recent innovation, the legislation is not prepared for some of the possible consequences that autopilot could bring, driving attention from the part of legislators.
There are also allegations of racism against Tesla, and this is an ongoing lawsuit that will continue to lead investors to question what is the working environment inside Tesla’s plants.
Tesla gets removed from S&P 500 ESG Index
Tesla has also been removed from the S&P 500 ESG index which tracks the socially responsible companies in the S&P500. This is a small detail, but it affects how some institutional managers will be able to invest in the company since it is not considered socially responsible.
Tesla’s valuation still remains one of the highest in the market and given the fact that it is a low-margin car manufacturer, who knows how long it will last. In order to justify the current valuation, Tesla needs to continue to grow in double-digits for a long time. Increased competition from other auto manufacturers will only increase, as they start to deploy more capital for R&D aimed at developing new electric vehicles.
Tesla stock still has a TTM price-to-earnings ratio of over 100, which is nearly 5x higher than the current S&P 500 P/E.
Allegations of sexual misconduct
There are also allegations of sexual misconduct against Elon Musk. According to the Insider, a SpaceX flight attendant was paid to be silenced by the company. This also does not look very favorable for Musk and his companies.
Who has a short position on Tesla?
Over the years several high-profile investors have shorted Tesla, and have been unsuccessful. Some of those investors include:
- Mark Spiegel
- Michael Burry
- Jim Chanos
- Bill Gates
- David Einhorn
- Steve Eisman
Bill Gates short position in Tesla
According to Elon Musk, Bill Gates has a large short position in Tesla, which is valued between $1.5 billion to $2 billion. This has led Elon Musk to confront Bill Gates, and until now although the short position has not been confirmed, it has also not been denied by Gates.
Is Michael Burry still shorting Tesla?
According to the latest 13-F filled by Scion Asset Management, the fund controlled by Michael Burry is no longer shorting Tesla.
How to short Tesla stock
There are three main ways to short Tesla stock:
- Shorting the stock
- ETP (Exchange Traded Product)
Shorting the stock
This option is one of the most common and all you need is a margin account with a broker, and you will be able to borrow and short shares of Tesla. This is one of the options that carry the most risk, since Tesla stock is known for being extremely volatile, and it can move up abruptly which could make you lose money.
The second way of getting short exposure to Tesla stock is by buying puts or selling calls on Tesla. Buying Puts seems to be one of the ways of profiting from Tesla’s stock decline that carries the least amount of risk. This is because you can only lose the cost of the puts, and you can also buy long-dated puts. This means that you have a larger time frame in which the stock has to decline so you can make money.
Selling calls can also be an option but it carries a lot more risk. If you are selling call options you are giving someone the right to buy a stock at a certain price, and you will need to provide those shares. If the stock. Since this carries a lot of risks, it is only advisable for experienced investors.
The last option to profit from a Tesla stock decline is by buying short Tesla ETPs.
Is there an ETF to short Tesla?
Yes, there are several exchange-traded products to short Tesla stock, including:
- GraniteShares 3x Short Tesla Daily ETP
- Leverage Shares -2x Short Tesla ETP
- Direxion Daily TSLA Bear 1X Shares
- Leverage Shares -3x Short Tesla ETP
These exchange traded products reflect the daily price movements of Tesla stock, and they are expected to increase in price by the same magnitude as Tesla stock declines. Some of these ETPs are leveraged, and you can make a lot of money if Tesla shares go down but you can also lose a lot of money.
The great advantage is that you cannot lose more than you invest, so this remains one of the easiest ways to be against Tesla.
How to short Tesla stock on Robinhood
You can short Tesla stock on Robinhood as long as you have a margin account. Additionally, you can also consider buying a put that gives you exposure in case Tesla’s stock collapses.
Should I short tesla stock?
While Tesla’s valuation and current media scrutiny could signal a possible decline in the stock price, it is not certain what will happen. Tesla remains one of the most volatile stocks, and a lot of short sellers have lost money trying to short it over the years.
However, instead of short, you can use Tesla’s stock as a hedge against market volatility. If you have a mostly long portfolio, you can use a small part of your portfolio to short Tesla, which should protect your portfolio in case the market crashes. Shorting Tesla as a bet is something entirely different.
Should you bet against Tesla?
Over the years, extremely talented investors and analysts have tried to short Tesla, and there is even a whole movement of Tesla short sellers - the Tesla Q. Despite their efforts the company’s valuation continues to be in bubble territory, and there seems to be very little that can actually hurt the stock performance.
Perhaps one of the best approaches is to avoid either going long or short on Tesla, as Charlie Munger has advocated.
When asked about what he thought of Elon Musk’s behavior, Charlie Munger replied:
“My thoughts are two: I would never buy it and I would never sell it short”
Tesla has certainly been one of the most controversial companies, and one of the best-performing stocks over the last decade. Although the company’s future looks bright, there is more to it. The current headwinds could pose a threat to Tesla’s valuation, and it is likely that the market sentiment could change slightly, and so will the valuation.