Hedge Funds Shorting Tesla Have Now Lost Over $5 Billion

November 12, 2024

Hedge funds shorting Tesla have now lost over $5 billion despite the company’s slight correction on Tuesday.

TSLA stock fell more than 6% after shares hit a new 52-week high of $358.64 on Monday.

In the past 6 months alone, Tesla stock has surged more than 91%.

Since Donald Trump’s election victory, hedge funds that bet against Tesla Inc. have suffered significant losses, largely due to the close relationship between Trump and Elon Musk.

According to Bloomberg, hedge funds with short positions on Tesla between election day and last Friday have incurred losses of at least $5.2 billion, based on data from S3 Partners.

Many hedge funds have been forced to adjust their positions, with a growing number unwinding their short bets over the last four months.

This shift coincided with Musk’s endorsement of Trump on July 13.

Musk, the CEO of Tesla, has emerged as one of Trump’s most prominent billionaire supporters, using his wealth to boost Trump’s 2024 campaign.

His support positions him for potential positive political influence.

Lekander, CEO of Clean Energy Transition hedge fund, mentioned that he had a small short position in Tesla leading up to the election but reduced it significantly, resulting in only minor losses.

“But we have lost some money,” he acknowledged.

Since the election on November 5, Tesla shares have surged nearly 30%, adding more than $200 billion to the company’s market value, which has now exceeded $1 trillion.

In this environment, hedge funds that previously shorted the stock have quickly reversed their strategies.

As of November 6, only 7% of hedge funds were net short on Tesla, down from 17% in early July, according to Hazeltree data.

However, only 8% of hedge funds are net long on the stock.

Tesla has proven to be a risky stock to short, especially as the broader electric vehicle (EV) sector faces challenges such as trade tensions and declining consumer demand.

In July, nearly 20% of hedge funds had short positions against Tesla, but they were caught off guard when the company released strong sales figures, leading to a sharp rise in its stock price.

In contrast, the wider EV sector has seen over a 12% decline this year, as indicated by the KraneShares Electric Vehicles and Future Mobility Index ETF, following a roughly 9% drop in 2023.

Meanwhile, Tesla’s stock has increased by about 30% in 2024, after more than doubling its value last year.

This performance diverges sharply from other green sector stocks, which have struggled following Trump’s election amid concerns he would cut clean-energy incentives.

Lekander predicts that in the next 12 to 18 months, Tesla will feel the negative effects of Trump’s anti-climate policies.

He said, “Trump’s win is very negative for Tesla as an auto company,” anticipating that the administration will eliminate subsidies that have benefited Tesla.

Musk has expressed interest in a role within Trump’s administration to eliminate what he views as bureaucratic inefficiencies.

Trump has even toyed with the idea of appointing Musk as “Secretary of Cost Cutting.”

Recently, Musk indicated that if he were to join the government, he would advocate for a more efficient regulatory process for approving fully autonomous vehicles nationwide.

Edward Lees, a portfolio manager at BNP Paribas Asset Management, noted that Musk’s influence could serve as a link between the tech sector and Washington.

Musk, who publicly endorsed Trump after the candidate survived an assassination attempt in July, has also seen his wealth grow significantly following the election.

Tesla’s stock surge post-election added $50 billion to his net worth, as reported by the Bloomberg Billionaires Index.

Musk has also contributed over $130 million to Trump and other Republican candidates in competitive races.

Lekander estimates that the “Trump effect” accounts for about a third of Tesla’s current stock price, suggesting that the share price is influenced by how much Trump’s presidency can benefit Musk.

“So now Tesla’s stock is more of a punting exercise on how much can Trump help Elon,” he concluded.

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