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Tesla Inc. (TSLA) is one of the most controversial stories in the stock market in recent history. The electric car manufacturer is led by the CEO Elon Musk, the famed entrepreneur, and creator of companies such as SpaceX and the Boring Co.  It’s an epic bull/bear battle that has ranged since shares rocketed higher in March of 2013. It would seem to be a never-ending battle, while the winner is still undecided. If anything is certain, it is that one side will triumph, and one will be left to swallow their pride and admit defeat.

There is a basic underlying reason why the short-sellers can’t crack the stock, and it comes down to the shareholder base of Tesla with many of the shares being control by just a few very long-term holders, and as long as those holders remain, the shorts may find it hard to win.

Long-Term Holding Base

The top 7 shareholders control just over 60 percent of Tesla shares, owning about 93.6 million, of the 169.79 million shares outstanding. Elon Musk himself owns about 22.5 percent of the total shares, followed by T. Rowe Price with 9.25 percent, and Fidelity which controls about 8.5 percent. Just the top three holders control 40 percent of the shares.

Short Interest Surges

Short Interest has climbed in the shares of Tesla, to a record high, with roughly 38.9 million shares as of May 15. It represents nearly 23 percent of the total shares outstanding. It presents a problem for the short-sellers, because if 60 percent of the shares are in the hand of long-term holders, and there already being 23 percent of the shares, it doesn’t leave many shares available left to sell and push the price lower.

Institutions Adding Shares

During the first-quarter institutional investors increased the number of aggregate 13F shares held by 7.8 percent to 106.15 million from 98.46 million in the fourth-quarter. 92 institutions started new positions, while 256 adding to existing shares. Meanwhile, 97 institutions exited the stock, while 226 reduced their holdings. It is surprising, given the fact shares fell nearly 14 percent during the quarter.

Can Shorts Win?

Short-interest began rising around March 15 and spiked through April 15 and has since plateaued. It isn’t clear at this point if holders of the stock were selling shares, or if it is mostly short-selling related. If the sell-off in Tesla’s stock from the middle of March to present was more short-selling related, then it is going to take the long-term holders to start dumping shares to press prices lower, or else the shorts are going to need to pile in even more.

At this point, the reason why Tesla stock hasn’t fallen apart is that there is a dedicated base of long-term holders, and unless they capitulate it is a game the shorts will likely never win.


This entry was posted on Wednesday, May 30th, 2018 at 9:10 am and is filed under Stock. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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