Short-sellers who had targeted Tesla Inc logged a $700 million paper profit on Thursday following the fall of the stock almost 9 percent a day after CEO Elon Musk stunned experts by dodging “boring” questions regarding the automaker’s financial outlook.
The windfall wiped out short-sellers’ present year losses on Tesla, the biggest U.S. equity short, bringing year-to-date paper profits to $683 million, stated Ihor Dusaniwsky, head of research at financial analytics firm S3 Partners.
Short-sellers look for profit by selling borrowed shares with the hope of purchasing them back later at a smaller price.
Tesla’s shares and bonds slid on Thursday as investors took the CEO to task for slashing analysts’ questions and grappled with issues over Tesla’s ability to raise funds in the future.
In a bizarre conference call, the iconoclastic CEO described concerns about Tesla’s capital requirements as “boring” after the company, which also makes solar technology, reported a record loss of $709.6 million, or $4.19 each share, in the first quarter ended March 31.
“Don’t let Musk’s conference call theatrics fool you. He did not want investors to concentrate on his rapidly deteriorating finances,” prominent short-seller Jim Chanos of Kynikos Associates LP informed Reuters in an email.
“Tesla’s quick ratio fell to 0.38 and their (Altman) z-score is approaching 1.0,” Chanos stated.
The so-called quick ratio is a commonly used indicator of short-term liquidity, while an Altman z-score is a mix of weighted business ratios that is used to count the likelihood of financial distress.
“Both are indicative of a company in financial distress,” stated Chanos.
Chanos informed Reuters in November he continued to add to his short position in the automaker throughout last year.