It seems oddly fitting that Hindenberg Research, named after the disaster of hydrogen-filled airship, has put out a scathing report trying to bring down Nikola Corp (NKLA), a hydrogen-fueled truck designer\manufacturer. In its report, Hindenberg Research calls Nikola an “intricate” and “massive fraud” just days after General Motors (GM) received an 11% stake in the company, worth $2 billion, in exchange for manufacturing its Badger pickup truck.
NKLA short interest is $532 million; 12.55 million shares shorted; 9.23% of its float. NKLA stock borrow costs on existing shorts are 1.21% fee, but rates are rising as new short demand is increasing. Stock borrow rates are hitting 2.50% in today’s trading. NKLA is the 11th largest short in the worldwide Auto Manufacturing and Construction Machinery\Heavy Trucks sectors.
Short selling in NKLA has been active despite the recent surge in its stock price. Its stock price surged +41%, to $50.05, on the GM partnership news but is down -23% from those highs as of mid-day trading. Over the last month we have seen 337 thousand of new short selling in the stock, a +2.7% increase worth $14 million but short selling has accelerated over the last week in response to increased volatility in the stock. Shares shorted increased by 874 thousand shares, worth $37 million, over the last week, an increase of +7.5%.
Overall, short sellers have been selling into a rally since May and have been in the red as their positions grew. Shorts are down -$253 million in net-of-financing mark-to-market losses for the year but are now in the black for September, +$36 million in mark-to-market profits, mainly due to +$51 million in mark-to-market profits on today’s -9.5% price move.
NKLA shares shorted topped out at just over 14 million shares immediately prior to its August earnings release but subsequent price strength forced some short covering and shares shorted dipped below 12 million shares.
Short selling in NKLA had caught a tailwind since its recent low of 11.19 million shares in late August as its stock price trended lower and actually spiked on the GM news. Today’s Hindenberg research report may spur on new short selling, not only from existing shorts but new short sellers smelling fresh blood and jumping into the fray.
Chairman and Founder Trevor Milton has recently tweeted that he will reply to Hindenberg’s allegations “It will take the rest of the day to address the one sided false claims, but I will put out a detail report to address it”. This will give short sellers and long shareholders the rest of the trading day to adjust their holdings in anticipation of yet another volatile newsprint in the stock.
We expect NKLA short selling to continue as this recent hyper price volatility will lure new short sellers into the stock. An increase in shares shorted should push totals over August’s high of 14.1 million shares. With some long shareholders looking to sell and lock in whatever is left of their profits since NKLA’s June $79.73 year-to-date high we may see down-side price pressure from both the short and long side of the market. If long shareholders start selling in size it may be the impetus for even more short selling in the stock.
Unfortunately, additional short selling will also make it more expensive to hold NKLA short exposure as the increased gamma of short sale activity is allowing lenders to inch up stock borrow rates. There is still ample lendable stock on the street, but the sudden increased demand has made this a “hot stock” to short and stock borrow rates are understandably increasing. Lenders will continue to increase rates until short sellers start to balk at the additional financing costs but as long as there are takers of the stock, rates should continue to climb slowly. Rates are hitting 2.50% fee and could hit 5.00% fee if short selling turns into overdrive on Trever Milton’s response to Hindenberg’s allegations.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
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