Tesla [NASDAQ:TSLA], one of the most widely held stocks by retail investors, has become the gift which keeps on giving for short traders. The stock price has built downward momentum since September and we took a short position on the stock in mid-November in our active trading portfolio.
Writing in the Financial Times this week, Bryce Elder said: "To recap: after a period of infantile delusion, Elon Musk's accidental bid for Twitter coincided with fiscal gravity reasserting itself and the metaphorical skateboard went over the gorge anyway. For a time, investors overlooked Tesla's weak second-quarter deliveries and bought into Musk's misplaced confidence that he could style everything out."
You can see our original report on Tesla and why we took out a short trade on the stock if you are an Armchair Trader Plus+ subscriber. We shorted Tesla at $190 on 18 November, netting us a gain so far of 40%. Factor that into a leveraged Contracts for Difference trade short Tesla at x10 and it already translates into a considerable gain of approximately 400%.
But there were a number of reasons why Tesla should have been on every short seller's radar this autumn. Firstly, its astronomical valuation bore no relation to the value of the company itself, especially when measured against far bigger competitors in the auto sector.
Secondly, Tesla's competitors in the electric vehicle market were bound to close the gap on Tesla. It does not have the same blue water lifestyle gap between itself and other companies in the sector that Apple has in the smart phone space. That first mover advantage will continue to evaporate in 2023.
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