A Tesla analyst has a word of caution for CEO Elon Musk's most hated enemies: Short sellers.
Tesla (TSLA) - Get Tesla Inc. Report shares were down 5.17% on Wednesday, continuing a downward slide this week alongside bearish analyst notes questioning Tesla's growth prospects going forward. Its shares were trading at $194 on Wednesday, its lowest level since December 2016.
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In a note, Bank of America analyst John Murphy summarized many of the concerns swirling around Tesla's stock: namely, the carmaker's apparent struggles in balancing production, deliveries and its often-stated profitability goals.
"With fundamentals deteriorating, specifically deliveries/production that are starting to stall as well as losses/cash burn that are not turning a corner on a sustainable basis, some of these optimists now appear to be taking a much more pessimistic stance, with the stock breaking down in recent days," he wrote, also reiterating "major challenges" Tesla faces in resolving logistical and other issues.
However, he also cautioned that much of the pressure on the stock in recent days has been from short sellers pressing aggressively alongside an ongoing breakdown in the stock. According to S3 Partners, Tesla had $7.8 billion in short interest as of May 21, equivalent to 29.25% of total float and making it the third most-shorted stock by percentage, behind Lyft (LYFT) - Get Lyft Inc. Report (54%) and Beyond Meat (BYND) - Get Beyond Meat Inc. Report (46.9%).
The high short interest in Tesla could mean a short squeeze in the days or months ahead should results come in "even slightly better than draconian expectations," Murphy wrote, or if Musk introduces another venture or target that manages to ignite interest by Tesla bulls.
Musk has often clashed with short-sellers in the past, and once referred to the SEC as the "Shortseller Enrichment Commission." S3 Partners data shows that Tesla short sellers have netted about $1 billion in May.