Apple and Tesla may be market darlings, but hedge funds are betting big they'll collapse

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The Tesla logo is seen on the Apple iPhone case in Santa Monica, California.

Patrick T. Fallon | Bloomberg | Getty Images

Elon Musk’s electric automaker Tesla on Wednesday once again reclaimed its title as Wall Street’s most-shorted stock.

That was, at least, until Apple stole it back.

Tesla’s meteoric climb over the last six months hasn’t gone unnoticed by investors, who’ve lauded the Palo Alto carmaker for its new Shanghai factory and better-than-expected auto deliveries.

Nearly two weeks ago, Tesla’s said it delivered a record 112,000 vehicles globally during the fourth quarter and 367,500 for the year, a 50% jump from 2018.

But Tesla’s 100% rally over the last six months hasn’t escaped the attention of Tesla’s biggest critics either, who’ve since doubled down on their bets the company’s stock will fall from its lofty heights.

The group pushed the dollar amount of Tesla shares borrowed to sell short to $14.5 billion on Wednesday, making it the most-shorted American equity, according to data gathered by analytics firm S3 Partners.

At the time, the Tesla shorts eclipsed the value of Apple’s, which stood at $14.3 billion. The iPhone maker had been the most-shorted stock in the U.S. market in terms of total value since it passed Tesla in September.

The critics tend to be hedge funds, which try to beat the broader equity market with concentrated portfolios of stocks they like combined with short sales against those they don’t.

Short sellers borrow and then sell shares of a company they think will decline in value. By selling a security at current prices and buying it back later, at a lower price, the investor can turn a profit.

But Tesla’s restored reign as the most-shorted U.S. equity was short lived after Apple reclaimed its place at No. 1 on Thursday. Tesla’s equity sold short on Thursday was worth $13.7 billion while Apple’s was worth $14.3 billion.

It should be noted, however, that the value of Apple’s stock sold short may seem high simply because it’s one of the largest public companies in the world. Apple’s market cap is about 14 times larger than Tesla’s, meaning that even a small amount of short selling in the iPhone maker’s stock can reach big sums.

Looking at relative short selling at the two companies reveals a different picture: Only 1% of Apple’s stock available for trading is sold short versus about 20% at Tesla.

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