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23. January 2020 | 14:26 CET

TESLA - does a short squeeze like once at Volkswagen threaten?

  • Short squeeze

In the language of traders, the covering of short position in a rapidly rising market with a scarce supply is called short squeeze. So-called short sellers have previously borrowed shares from banks or other investors and then sold them because they wanted to bet on falling prices. If the share subsequently falls, the deal works out successfully. However, if the share rises, losses can occur when the position is closed out again so that the borrowed shares can be returned.

time to read: 1 minutes by Mario Hose


Highest market capitalization in the world

Some market participants will not forget October 28, 2008. On that day, the Volkswagen share was briefly quoted at EUR 1,005.00. Beyond any valuation logic, the share price rose because short sellers bet on falling share prices on a large scale.

The whole situation escalated within a short time. Few days before this rise the shares still changed hands at less than 250.00 EUR. Volkswagen was at the top and at that moment the company with the highest market value in the world.

High financial losses after short squeeze

Following a report from Porsche that the sports car manufacturer had increased its share in Volkswagen to 42.6% and had also secured an option of a further 31.5%, the Stuttgart company had access to a total of 74.1%. The State of Lower Saxony also held a 20% stake in Volkswagen. This means that the free float was less than 6%.

At the same time, short sellers and hedge funds stood in each other's way with approximately 12 to 15% of the available shares, which they had previously borrowed from banks, thus driving up the share price. One hedge fund lost almost EUR 15 bn in this context and entrepreneur Adolf Merckle lost around EUR 1 bn. Merckle committed suicide for around six weeks - a tragic end to a previously successful life.

Sufficient trading volume for cover

At the end of 2008, Volkswagen shares were trading below EUR 250.00 again after their brief rally and in the middle of the financial crisis. At TESLA, the situation is currently different. On yesterday's trading day, more than 6.2 million TESLA shares were short and short sellers were betting on falling prices. In total there are over 180.2 million shares of the battery car manufacturer. The company's market value at the closing price of USD 569.56 was around USD 102.7 billion. At the high, the shares changed hands at USD 594.50.

TESLA had overtaken Volkswagen yesterday by the market value. The camp of TESLA fans celebrates this increase in value of over 100% since October 2019, but you should not forget one thing - without taxpayers' money and subsidies, TESLA would look very different.

Rumour mill is not sustainable

Given that over 31 million shares of the company were traded yesterday, there appears to be sufficient liquidity to cover short sales. But who knows, maybe the founder Elon Musk will fuel the share price with takeover speculation in the near future?

Conflict of interest & risk note

In accordance with §34b WpHG we would like to point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH may hold long or short positions in the aforementioned companies and that there may therefore be a conflict of interest. Apaton Finance GmbH may have a paid contractual relationship with the company, which is reported on in the context of the Apaton Finance GmbH Internet offer as well as in the social media, on partner sites or in e-mail messages. Further details can be found in our Conflict of Interest & Risk Disclosure.