Most automakers have now committed to electrifying their fleets.
This has brought growing attention to batteries which are projected to enjoy massive market growth in the next decade. This has also attracted the attention of short-sellers, and that is a problem.
We explain in this blog article.
Short selling is a perilous market strategy in which an individual essentially bets against a publicly traded company.
In regular investing, the expectation is that a stock price will rise, thereby providing a profit to the investor, short selling is done with the expectation that the stock price will fall.
The process of short selling is simple—an investor or stockbroker borrows a stock, waits for the market value of it to fall, then repurchases the stock at a lower price to return it to the lender, making a profit off of the difference.
When successful, short selling can net an investor a reasonable short-term profit since stocks usually devalue faster than they appreciate. However, if the short seller miscalculates and the purchased stock rises in value, the losses could be devastating.
Investors’ losses are limited to the amount invested; a short seller’s losses depend on the given price of a stock, which could theoretically rise by an infinite amount.
A salient example of the dangers of short selling occurred when Reddit organizers grossly inflated the stock price of GameStop and AMC, resulting in billions of dollars in losses for the Hedge Funds short-selling those companies.
Make no mistake, there is a much more sinister side of short selling, one which threatens to undermine technological progress and innovation—progress that will be required to decarbonize global economies.
Short sellers have begun to spread misinformation about solid-state battery manufacturers that are promising massive advances in performance over current Li-ion battery technology.
This is problematic, especially as numerous reputable analytics and data outlets report that the demand for battery technology is expected to rise sharply in the foreseeable future with increased economic electrification. Due to its infancy and future market potential, the battery industry is incredibly secretive, which opens it up to bad-faith short sellers looking to cash in on poor industry practices.
There is no set of metrics for third-party evaluation of solid-state batteries, which makes these companies very vulnerable to false information spread. One such example of bath-faith short selling occurred just this week when Scorpion Capital published a 188 slide report describing QuantumScape, a solid-state battery company, as a “pump and dump special purpose acquisition company” (SPAC).
This is despite the fact that QuantumScape announced earlier this month that they had met the requirements for an additional 100 million dollar investment from Volkswagen. Additionally, in February, Quantumscape revealed a breakthrough in its technology, during which time billionaire George Soros’s investment firm disclosed it had put capital into the startup.
The need for rapid decarbonization has sparked a new technological race with trillions of dollars in potential market value at stake. Investors should pay attention to leadership and company reputation over all else.
It’s essential to keep in mind the incentive that short-sellers have to be less than honest in their “analytical reports.” After all, they want these companies to fail. Bad-faith investment practices are damaging not only to the industries targeted but also to all of society, which has grown increasingly dependent on technology.
Technological innovation is no linear process. Ups and downs do occur, but as long as due diligence is performed before an investment is made, there is no reason to buy into hysteria being pushed by short-sellers.