Tesla CEO Elon Musk is irked at Bill Gates. He doesn’t see how Gates, a leading proponent of sustainable energy, could possibly sell Tesla‘s
stock short. And Musk says Gates is doing just that.
In a tweet on Friday night. Musk said he believes Gates has sold short $500 million shares of Tesla (ticker: TSLA), betting the stock will fall. He went on to ridicule Gates’ bodily girth–with a photo, an emoji, and a crude comment, He lost interest by Sunday, saying, he was “Moving on” from “making fun of Gates for shorting Tesla while claiming to support climate change.”
It was a jarring performance by an executive whom Gates had publicly praised. In an interview last year on Sway, a New York Times podcast, Gates said: “Well, it’s important to say that what Elon did with Tesla is one of the greatest contributions to climate change anyone’s ever made. And you know, underestimating Elon is not a good idea.”
Musk, evidently, felt underestimated. If Gates really believes in a greener future, he seemed to say, Gates has to believe in the electric-vehicle maker’s stock. In the Friday night tweet, which came in response to a follower’s query about a supposed text exchange between the two titans, Musk said he had confronted Gates about shorting Telsa. Tesla and the Gates Foundation didn’t respond to requests for comment.
Shorting a stock means an investor borrows and sells shares they don’t own, betting that the price will decline. Tesla, is no stranger to short selling; the company’s stock was a very popular short in recent years. Bears didn’t believe Tesla could popularize electric vehicles and fund its operations from internally generated cash flow.
Tesla did both. And most of the bears have gone away. Today, Tesla’s short interest ratio–the amount of stock sold short compared with the total available for trading–looks downright average. About 3% of the stock available for trading has been sold short. The average for the S&P 500 is roughly 2%.
Tesla, however, is the most heavily shorted of companies with market capitalizations north of $1 trillion. Microsoft (MSFT), another trillion-plus company, and the others of similar size have an average short interest ratio below 1%.
Aside from concerns about a business’s health, investors will also short a stock because of valuation. Tesla stock, at first glance, looks expensive. Shares trade for roughly 85 times the estimated 2022 earnings. The Nasdaq Composite trades for about 26 times. But Tesla earnings are growing rapidly, expected to rise at a 50% average annual rate between 2021 and 2023.
Investors will also short stock as a hedge against rising interest rates or a recession. Higher growth stocks tend to get hit harder when rates rise and rates are rising now.
But if Gates is shorting Tesla, his reasons remain a mystery–hedging, valuation, or something else. Gates doesn’t seem to have a problem with the mission of Tesla,, which is, as Musk puts it, to put the world on a path to a sustainable-energy future. Gates is vocal proponent of just such a future. Gates may still be a fan of Tesla’s contribution to the environment but, for whatever reason, is skeptical of the stock price. That is possible, even if Musk doesn’t think so.
None of this is likely to mean much for Tesla investors. They can handle news of one potential short seller, or Twitter sniping between two of the world’s richest people. Tesla investors are inured to both drama and stock volatility.
Tesla stock, for instance, has ranged from $1,243 a share to $547 a share over the past year. The almost $700 spread is 56% of the stock’s 52-week high. Microsoft,
on the other hand, has ranged from about $350 to $238 a share. The $112 spread is only 32% of its 52-week high.
Write to Al Root at [email protected]
Credit: www.marketwatch.com /