After a wild stock rally that doubled its market value in just three months’ time, Tesla stock was finally hit by a note of doubt from those on Wall Street who feel that the electric carmaker’s market value may have reached its peak.
That means Tesla short sellers who have lost billions of dollars in recent periods may soon see a major turnaround.
On Wednesday, short interest in Tesla stock surpassed that of Apple, making the automaker the most shorted stock in the U.S. right now, according to data from financial analytics firm S3 Partners. Short interest is measured by the dollar amount of shares borrowed to bet against a stock. For Tesla, that number reached $14.5 billion on Wednesday, per S3 Partners. Short interest in Apple, which is 14 times larger than Tesla by market cap, stood at $14.3 billion.
Several Wall Street banks, including longtime Tesla believers like Morgan Stanley and Baird, have downgraded Tesla stock during its rally in 2020 so far. “We have become incrementally cautious on the stock, given its huge recent surge in price,” Bernstein analyst Toni Sacconaghi warned investors in a note last Thursday, despite not having issued a downgrade.
“Near-term momentum and sentiment around the stock is admittedly very strong, but we ultimately question the sustainability of the momentum,” Morgan Stanley’s star analyst Adam Jonas wrote in a note on Thursday.
While acknowledging that Tesla deserves to be one of the most valuable automakers in the world, Jonas pointed out that its business potential, particularly in China, has been fully priced into its stock, writing, “We continue to harbor concerns whether an auto business commercializing advanced, dual-purpose technology in economically sensitive industries could be a long-term winner in the Chinese market.”
Responding to Morgan Stanley’s downgrade, Tesla shares fell 4% on Thursday to below $500 for the first time this week, setting CEO Elon Musk a step back from claiming his gigantic compensation package tied to Tesla’s market value.
Tesla’s stock began its remarkable surge in October after it reported a surprise profit in the third quarter of 2019. The company is currently worth $90 billion, well above that of Ford and General Motors.