After a promising 2020, Wall Street is betting against electric vehicle manufacturers in 2021.

Short interest in electric vehicle companies jumped through the end of April, the latest S&P Global Market Intelligence data shows. With sellers speculating that profitability for EV manufacturers will be increasingly difficult due to supply constraints and competition, the bets against these companies may quickly increase, analysts said.

"Traders are realizing that the path to sustainable profits for young EV-only manufacturers will be longer and more difficult than initially assumed," said Matt Weller, global head of research with GAIN Capital.

After several EV companies including Tesla Inc. and NIO Inc. went on a historic rally last year, a trifecta of a global shortage of components including semiconductors, high valuations and increased competition has caused a "major overhang" in the EV sector, said Daniel Ives, managing director, equity research at Wedbush Securities.

"So far 2021 has been a 'Nightmare on Elm Street' period for EV investors," Ives said in an interview.

At the end of April, the second most-shorted stock on all major U.S. exchanges was Workhorse Group Inc., an Ohio-based manufacturer of electric-powered delivery and utility vehicles with 33.16% of its outstanding stock held by short-sellers, according to Market Intelligence data. Esperion Therapeutics Inc., one of the many biotechnology stocks targeted by short-sellers, remains the most-shorted stock on U.S. exchanges, with 34.36% of its stock held by short-sellers at the end of April.

Blink Charging Co., a supplier of equipment and charging stations for electric vehicles, was the third-most-shorted stock at the end of April, with 32.56% in short interest.

Short-sellers borrow stock and sell it in anticipation that they can replace it at a later date at a lower cost if the share price falls. If their plays are successful, short-sellers profit from the difference between the price at which they sell the stock and the price at which they repurchase.

The strategy drew unprecedented attention earlier this year after retail traders caused GameStop Corp. stock to rise steeply in response to the heavy speculative betting on the retail game company's pending demise.

Overblown valuations and competition from traditional automakers could be contributing to increased short interest in EV startups, according to Garrett Nelson, senior equity research analyst at CFRA Research.

Some EV-makers went public via special purpose acquisition companies, including Lordstown Motors Corp. and Fisker Inc. which could be skewing the companies' valuations.

"It's not difficult to see that somewhat of a bubble had formed around the SPAC market, as many of the companies who went public via SPAC were still pre-revenue and in the development stage, resembling business plans more than actual businesses, and the rise in short interest is a reflection of many investors coming to the conclusion that valuations were unjustified," Nelson said in an email.

Short-sellers found EV startups an easy target "once the SPAC bubble popped," said Edward Moya, a senior market analyst with OANDA.

"The EV space got crowded quickly and many retail traders didn't want to hold a line with all these companies," Moya said.

EV companies also face competition from traditional carmakers like Ford Motor Co. and General Motors Co., which have invested billions of dollars in electric vehicles and debuted the all-electric F-150 and GMC Hummer, respectively, among other models. This could make it difficult for EV startups to succeed in an industry with high fixed costs and low margins, CFRA's Nelson said, adding that a disconnect had formed between valuations of traditional automakers and the EV startups.

Since the start of the year through May 25, stocks of the most-shorted electric car companies — Workhorse, Lordstown Motors and Electrameccanica Vehicles Corp. — have fallen 58.9%, 55.4%, and 45.6%, respectively. During the same period, shares in GM and Ford, which had short interest of just over 1% as of the end of April, have climbed 36.3% and 45.7%, respectively.

"Ironically, the industry's collective realization that EVs are the future is contributing to skepticism and near-term underperformance in EV-only manufacturers," said Weller with GAIN Capital. "They were slow to recognize the shift, but it may only be a matter of time before so-called legacy automakers 'catch up' to the innovation in the EV space and utilize their superior manufacturing experience and distribution networks to carve out significant market share."

More short selling of EV startup stocks is expected with every electric model leaving the production line of traditional car manufacturers, said Ihor Dusaniwsky, managing director of predictive analytics for S3 Partners.

"Increased competition in the form of new models hitting the showrooms will dilute market share across the EV platform — which should lead to more short selling in some of these EV stocks," Dusaniwsky said in a May 19 research note.