Tesla has baffled Wall Street, disappointed investors, and is about to hand the shorts $1 billion in profits for one of their best months in years (TSLA)

With Tesla shares down 16% this month, short sellers have made more than $1 billion in mark-to-market profits through Monday — and are on track for one of their profitable months since 2016.
Earnings expectations and price targets have come down rapidly in recent weeks as underlying demand concerns and the automaker’s quarterly loss worries analysts.
Watch Tesla trade live.

Elon Musk has long derided Tesla short sellers. The CEO has targeted them on Twitter, suggested the practice be outlawed, joked about their connection to the Securities and Exchange Commission, and has reveled in their losses when the stock is going higher.

Now as the stock and debt prices of his electric-car maker fall under intense pressure and Wall Street rushes to curb its enthusiasm, he’s in essence handing them everything they’ve wanted.

With shares down 16% in May, the stock is on track for its worst month since March 2018 — when it fell 22%. The plunge in Tesla’s share price has given short sellers $1.07 billion in mark-to-market profits this month, and has them on track for one of their best months since 2016, according to the financial-analytics firm S3 partners.

"TSLA shorts are having a rebound year," Ihor Dusaniwsky, the firm’s managing director of predictive analytics, said in a report to clients late Monday.

They have made $3.8 billion in paper profits this year as shares are on track for their worst annual performance on record, having plunged 38% through Monday. Over the last three years, short sellers lost more than $5 billion betting against the electric-car maker.

The drastic price action, and shorts’ profits, come at a delicate time for Tesla as underlying demand concerns persist.

The automaker’s last quarterly earnings report, out in late April, reflected a larger-than-expected loss and a 37% revenue decline compared to the prior quarter.

At the same time, watchdogs have once again called into question the safety of Tesla’s Autopilot feature. While the company has defended the feature, the National Transportation Safety Board said last week in a preliminary report it was engaged during a fatal March crash involving a Model 3 sedan.

One asset manager who closed out his short position in Tesla earlier this month says he still wouldn’t dare go long, and that he was just taking profits when the time was right.

"I think it’s still a good short," George Schultze, the founder of the New York-based Schultze Asset Management, said in an interview with Markets Insider on Monday. "But it’s been extremely volatile."

While Schultze wouldn’t specify exactly where the firm covered its short, he said it was in the ballpark of $240 a share. He opened the position when Tesla was trading near $350.

"Even though this company has some great products, and seems to be growing quite nicely, they have a debt problem," Schultze said. "If I had to make a new bet today, I’d put on a new short."

Once-bullish analysts have furiously chopped down their earnings expectations, some as many as four or five times over. The revisions come even as many were pleased with Tesla’s decision earlier this month to return to the capital markets and raise just over $2 billion.

Between late March and late April, Tesla was among the stocks in Morgan Stanley’s coverage universe with the most negative month-over-month changes in earnings expectations.

During that time Wall Street analysts lowered their earnings estimates for the next 12 months by 33%, with just three names seeing more severe cuts, according to a Monday report from the firm’s quantitative analysts.

"Tesla’s stock price will have to get back over $300/share for shorts to be deeply in the red again and the threat of a short squeeze to be valid," Dusaniwsky wrote. "Winter almost came for Tesla short sellers, but now it looks more like Spring is in full bloom."

Read more Tesla coverage from Markets Insider and Business Insider:

Inside Tesla Twitter, where legendary short-sellers and amateur investors gather to trash and praise Elon Musk’s electric empire

Elon Musk says in email to employees that new cost-cutting measures are the ‘only way for Tesla to become financially sustainable’

Tesla’s stock doesn’t trade like it used to

Markets Insider

NOW WATCH: The rise and fall of Donald Trump’s $365 million airline