Tesla short seller made nearly $9 billion! Many institutions lower Tesla target price
On July 23, Eastern Time, Tesla's stock price plummeted by more than 14%, the largest one-day drop in more than a year, causing short sellers to make a single-day profit of approximately US$4.1 billion. So far, Tesla has fallen by nearly 30% during the year, and the total book profits of short sellers have reached approximately US$9 billion. Institutions believe that Tesla's core financial data for the second quarter fell short of expectations as the trigger for its stock price to plummet. Many institutions, including Morgan Stanley, subsequently lowered the target price of the stock.
On July 23, Eastern Time, Tesla's stock price plummeted by more than 14%, the largest one-day drop in more than a year, causing short sellers to make a single-day profit of approximately US$4.1 billion. So far, Tesla has fallen by nearly 30% during the year, and the total book profits of short sellers have reached approximately US$9 billion. Institutions believe that Tesla's core financial data for the second quarter fell short of expectations as the trigger for its stock price to plummet. Many institutions, including Morgan Stanley, subsequently lowered the target price of the stock. However, "Wooden Sister" Cathy Wood bucked the trend and increased her position in Tesla by 160,000 shares on the day of its plunge, with a transaction value of more than $50 million. Short sellers gained nearly $9 billion this year On July 23, Eastern Time, Tesla's stock price suffered the most violent sell-off in more than a year. It plummeted 15.6% to $315.735 during the session, and finally closed down 14.52%. According to calculations by Ihor Dusaniwsky, managing director of S3 Partners, this round of selling has resulted in short-sellers’ book gains based on market value in a single day reaching approximately US$4.12 billion. As of July 23, Tesla has fallen 28.91% this year, ranking last among the "Big Seven" in the U.S. stock market. According to estimates, the cumulative book gains of Tesla short sellers this year have reached approximately US$8.92 billion. Tesla ranks first among the "Big Seven" in U.S. stocks in terms of short-selling ratio. S3 Partners data shows that currently about 3% of Tesla’s outstanding shares are shorted, while Meta, which ranks second, has only 1.6%. The famous hedge fund manager Michael Barry, the prototype of the movie "The Big Short", is also one of Tesla's short sellers. On June 30, Barry posted on the Substack platform that he had established a short position on Tesla at a price of $416.22 per share. It is worth noting that on July 23, when Tesla’s stock price plummeted, Cathy Wood, the head of Ark Investment and the “wooden sister”, aggressively bought the stock. Data shows that Ark Investment purchased a total of 160,000 Tesla shares on that day through ARK Innovation ETF, ARK Autonomous Technology and Robotics ETF, ARK Next Generation Internet ETF and ARK Space and Defense Innovation ETF, with a value of US$51.2 million. Many institutions lower Tesla target price Many institutions attributed Tesla's plunge on July 23 to its second-quarter earnings report falling short of expectations. The latest disclosed financial report shows that Tesla’s adjusted EBITDA in the second quarter was US$3.273 billion, a year-on-year decrease of 4%; the adjusted EBITDA profit margin was 11.6%, a year-on-year decrease of 3.53 percentage points. At the same time, Tesla’s adjusted earnings per share fell 18% year-on-year to $0.33 in the second quarter, well below the estimate of $0.51. Additionally, the company posted negative quarterly free cash flow for the first time in more than two years. Morgan Stanley analyst Andrew Percoco lowered his price target on Tesla to $400 from $417 and maintained a hold rating. The analyst believes that the market needs to see substantial evidence of return on investment - that is, the Robotaxi network achieves large-scale operations and demonstrates security improvements, as well as tangible progress in the commercialization of Optimus. Without transparent and verifiable advancement nodes, the market's tolerance for incremental capital expenditures will narrow. Truist analyst William Stein slashed his price target on Tesla to $370 from $430 and maintained a hold rating. Stein said that signs of Tesla's transformation from a car company to an AI company have become increasingly obvious, and the costs of the transformation are significantly dragging down profit margins and cash flow indicators, and the erosion of earnings by these expenditures may last longer than expected. He expects Tesla's free cash flow to remain negative for the remainder of 2026. RBC Capital Markets lowered Tesla's target price from $450 to $410, a decrease of about 9%. Analyst Tom Narayan said that price reduction promotions were the main driver of Tesla's record high delivery volume in the second quarter, but the profit margin of the automobile business shrank significantly as a result. Although the company's revenue increased by 26% year-on-year, the decline in profitability offset the positive effects of sales growth.
Overall, the erosion of profits and cash flow from the AI transformation costs revealed in Tesla's financial report is the key reason for the above-mentioned institutions to collectively lower their target prices.
Overall, the erosion of profits and cash flow from the AI transformation costs revealed in Tesla's financial report is the key reason for the above-mentioned institutions to collectively lower their target prices.