Tesla Short Squeeze Sees Hedge Funds Lose Over $5 Billion Since Election
Thanks to a post-election surge in Tesla’s stock, hedge funds shorting TSLA have experienced massive losses of over $5 billion.
Hedge funds short Tesla have seen staggering losses exceeding $5 billion following a post-election surge in TSLA stock. This unexpected spike in Tesla’s (NASDAQ: TSLA) valuation comes after CEO Elon Musk’s endorsement of President-elect Donald Trump, positioning Musk as one of Trump’s most influential supporters and intensifying the financial hit for hedge funds with short positions on Tesla.
Data from S3 Partners, analyzed by Bloomberg, reveals that hedge funds shorting Tesla incurred at least $5.2 billion in losses from Election Day until last Friday. During this period, Tesla’s share price jumped almost 30%, adding over $200 billion to its market value and pushing the company’s valuation beyond $1 trillion. According to Hazeltree, which tracks hedge fund data, short interest in Tesla dropped from 17% in July to just 7% after the election.
This remarkable rally underscores the heightened volatility of Tesla’s stock, especially for those taking short positions, a strategy where investors bet against a company’s stock price by borrowing shares to sell, hoping to buy them back later at a lower price. For hedge funds caught off guard, Tesla’s sudden rise was a bitter blow.
Per Lekander, CEO of Clean Energy Transition, who had a minor short position on Tesla going into the election, admitted:
“We have lost some money.”
Lekander’s losses, he noted, would have been more severe had he not reduced his position ahead of the election.
Tesla’s upswing contrasts with broader trends in the electric vehicle (EV) and renewable energy sectors. While Tesla surged, the KraneShares Electric Vehicles and Future Mobility Index ETF (NYSE Arca: KARS), which tracks the EV industry, experienced a 12% decline this year, mirroring the struggles of other EV companies grappling with trade tensions, weaker consumer demand, and fierce competition. Adding to the challenges, Trump’s victory spurred a sell-off in renewable energy stocks, as investors brace for potential rollbacks of green energy incentives—an agenda Trump signaled throughout his campaign.
Musk’s Alignment with Trump Fuels Market Optimism and Political Influence
Musk’s backing of Trump, which began with a public endorsement in July, has influenced market sentiment and stirred speculation around Musk’s potential political role in the new administration. As Musk leveraged his position as the world’s richest person, he became one of the Trump campaign’s most prominent billionaire supporters, contributing financially and actively promoting Trump’s candidacy. This endorsement, many analysts speculate, has strengthened Musk’s influence, with some even suggesting he could play a formal role in Trump’s cabinet.
Hedge funds, which track Musk’s influence and Tesla’s stock performance closely, recognized Musk’s endorsement as a game-changer. The alignment of Tesla’s CEO with Trump sent a positive signal to investors, leading many to unwind their short positions ahead of the election. However, not all funds acted quickly enough. With Tesla’s market cap soaring post-election, many were forced to reverse course on short bets in a market that favored the EV giant.
In the backdrop of this political alliance, Musk has reportedly discussed regulatory reforms with Trump, focusing on accelerating government approvals for fully autonomous vehicles—a move that would benefit Tesla significantly. Musk, who has criticized regulatory constraints as obstacles to innovation, could use his potential influence in Washington to ease federal restrictions on self-driving technology.
Tesla’s Success Amid Industry Headwinds
Despite the broader EV sector’s setbacks, Tesla has remained a formidable player. Year-to-date, Tesla’s stock is up about 30%, a stark contrast to the industry’s overall decline. Tesla’s resilience amid headwinds, including geopolitical trade issues and competitive pressures, has made it particularly challenging for short-sellers. The company’s market gains, coupled with Musk’s political connections, have highlighted Tesla’s unique standing in the sector.
In the past, Tesla’s stock has proven volatile, especially for those betting against it. Short-sellers have faced repeated setbacks with Tesla, including a $1.5 billion loss in 2019 when the company unexpectedly reported a profit. This latest short squeeze underscores the risks of betting against a company with Tesla’s unpredictability and passionate following.
For hedge funds, this costly lesson might prompt a re-evaluation of strategies around volatile stocks in politically sensitive industries.
Tesla (TSLA) Stock Price Action and Chart
Shares of Tesla (NASDAQ: TSLA) stock closed Monday’s trading session at $350, up 8.96% on the day.
Since Trump’s stunning election victory last Tuesday, TSLA stock has risen as much as 43%.
YTD, TSLA stock is up 40.89%.
View Tesla Interactive Stock Chart on Barchart
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Disclaimer: Wealthy VC does not hold a position in any of the stocks, ETFs or cryptocurrencies mentioned in this article.
