Stocks may be at all-time highs, but Tesla Motors Inc (NASDAQ:TSLA) has had a rough year with TSLA stock down 21% from its high. Fact is that TSLA stock refuses to move, and has pretty much been dead money — stuck in a tight range — for the better part of three years.
Yet, all of a sudden short interest in Tesla stock has started to skyrocket. Specifically, there are now 35.69 million shares of TSLA stock that are short. This marks the highest number ever for Tesla stock, and about 4 million shares greater than October.
Collectively, the short interest amounts to more than 40% of Tesla’s outstanding shares being sold short. In other words, despite three years of flat trading, the market is betting on big TSLA stock losses.
What’s changed for TSLA stock?
If 2+2=4, then the sudden rise in Tesla’s short interest is a reaction to Donald Trump winning the general election to become our next President.
One thing Donald Trump has always preached is his desire to let the free market decide which industries will thrive, and which ones do not. This is unlike President Obama and Hillary Clinton who have given 10s of billions to clean & renewable energy projects of all shapes and sizes. In fact, huge subsidies are a big part of the operating equation for both Tesla and SolarCity (NASDAQ:SCTY).
With the current ITC subsidy program ending in less than 28 months, there are real concerns that Trump won’t be near as friendly to the likes of Tesla as the Obama Administration. Given that Tesla’s $5 billion Gigafactory is essentially complete, and the company’s outlook revolves around electric vehicles, solar panels, and solar storage, TSLA stock owners have real reason for concern.
In fact, the difference in policy between Trump and Obama is so extreme, that Trump’s victory completely changed our own outlook on Tesla’s new solar roof project. In October, we said solar roofs are a game changer for Tesla stock (in a good way) but by November we made the case that TSLA stock could fall 75%. Investors clearly agree with the latter.
With that said, Donald Trump has big plans to cut taxes and increase spending. The only way his plan works is if jobs and wages really do grow by a significant margin. Tesla operates in costly industries that are still considered a niche. Trump will be more loyal to the big coal and auto companies that can hire faster and operate cheaper. That’s why short interest in TSLA stock is rising, and why Tesla stock will ultimately fall.