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Traders betting against Tesla got crushed on Thursday morning after the electric-car manufacturer reported a surprise earnings beat on Wednesday.

According to data from the financial-analytics provider S3 Partners, Tesla short-sellers absorbed $1.4 billion in mark-to-market losses after shares rallied as much as 20%.

The gains wiped out close to 70% of Tesla short-sellers' profits for the year, S3 wrote in a research note on Thursday.

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Traders betting against Tesla got clobbered on Thursday after the company posted an unexpected profit for the third quarter.

Short-sellers, who aim to make money by wagering that a stock will fall, lost $1.4 billion as Tesla shares soared as much as 20%, according to data from the financial-analytics provider S3 Partners. The losses erased almost 70% of Tesla short-sellers' gains for the year.

With about $8.31 billion in short interest, Tesla is the second-most-shorted stock in the US equity market, behind Apple, according to S3.

Over the past month, Tesla short interest has fallen by 5.12 million shares, or about 13.6% of total shares shorted, S3 added.

"Shorts were reducing their exposure in the event of a strong earnings report," Ihor Dusaniwsky, the managing director of predictive analytics at S3, wrote in a note on Thursday.

He continued: "We are expecting more short covering and the continuation of this long-term short squeeze as TSLA's stock price continues to show strength."

Leading up to Tesla's third-quarter earnings report, analysts and investors were concerned about the company's path back to profitability, which has long been a key debate around the stock.

The electric-car manufacturer surprised Wall Street with a profit per share of $1.91, compared with an expected loss per share of $0.24.

Tesla CEO Elon Musk has been an outspoken critic of short-sellers, arguing that they decrease the true equity return of the stock.

Tesla shares were still down about 11% year-t0-date on Thursday.

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