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The Tesla Effect: Investors Brace for Potential ELS Losses

Daniel Kim Views  

A Tesla store in Santa Monica, California, USA, is pictured. Santa Monica (USA)

Tesla’s poor stock performance increases the potential for losses in Equity-Linked Securities (ELS) based on Tesla as the underlying asset.

According to the Korea Securities Depository on the 23rd, as of the 19th, the foreign stock most held by domestic investors is Tesla, with a total holding value of $8.824 billion. Since last July, when Tesla’s stock hit a 52-week high, the net purchase amount to date has been $642.7 million, making it the third largest in total foreign stock net purchases.

Not only direct investors but also those who invested in Tesla through ELS are experiencing growing knock-in anxiety. The unpaid balance of Tesla ELS issued since last July is approximately $965 million. Typically, ELS offers early redemption opportunities every three or six months, but the unpaid balance has accumulated due to the failure of early redemption as Tesla’s stock price has fallen.

Based on Tesla as the underlying asset, ELS has attracted attention by offering a target return rate of more than 20% per year. This is high, considering that the target return rate for the stock index ELS is around 10%. However, as Tesla’s stock price fails to escape the downturn, the delay of early redemption and the potential loss of principal are increasing.

The knock-in price for Tesla ELS is generally 30-50% of the initial issue price. Tesla’s stock price fell from $293.34 in July last year to $142.05 on the 22nd (local time). Compared to the previous year’s high point, the recent stock price decline rate has already exceeded 50%. This suggests the possibility that the loss of principal for Tesla ELS has started.

Daniel Kim
content@viewusglobal.com

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