Tesla’s Share Price Crash Nets Short Sellers $16 Billion Profit

Hedge Funds Cash In on Tesla’s Decline

Hedge funds betting against Tesla have finally hit payday, making $16.2 billion as the electric car giant’s share price halved over the past three months.

According to data from S3 Partners, traders who had positioned themselves to profit from Tesla’s stock decline have reaped huge gains after years of struggling against the company’s soaring valuation.

Since reaching a closing high on 17 December, Tesla’s market value has plummeted by over $700 billion, wiping out more than $100 billion from Elon Musk’s net worth.

What’s Behind Tesla’s Share Price Collapse?

Several factors have contributed to Tesla’s steep decline:

• Musk’s Controversial Political Stance – His public support for far-right European parties has damaged Tesla’s brand image, leading to a sharp drop in car sales across Europe.
• Government Spending Cuts – As head of the Department of Government Efficiency, Musk’s aggressive cost-cutting measures have triggered backlash, further denting investor confidence.
• Trump’s Trade Policies – The US President’s escalating trade war has created uncertainty, with Tesla warning that retaliatory tariffs could drive up vehicle production costs.

JPMorgan recently lowered its Tesla price target from $135 to $120, with analysts struggling to find a comparable situation in the automotive industry where a brand lost value so rapidly.

“Tesla had a very strong brand value, and Elon has managed to totally destroy it,” said Per Lekander, managing partner of Clean Energy Transition, a hedge fund that has bet against Tesla for years.

Short Sellers Finally See Gains After Years of Losses

For years, Tesla was one of Wall Street’s toughest stocks to short.

• Since going public in 2010, short sellers have accumulated $64.5 billion in total losses, even after the recent $16 billion profit.
• The number of Tesla shares being shorted has surged 16.3% in the past month, reaching 71.5 million shares, as fears over Trump’s economic policies triggered a wider US stock market sell-off.

Tesla’s stock had been on a post-election rally, with investors expecting Musk’s close ties to Trump to benefit the company. However, disappointing fourth-quarter results in January and concerns over trade tariffs have erased those gains.

Musk’s History of Taunting Short Sellers

Elon Musk has never hidden his disdain for those betting against Tesla.

• In 2020, he mocked hedge fund manager David Einhorn, tweeting:

“Mental illness is tragic. Did you know that Einhorn means unicorn?”

• Last year, he warned that anyone shorting Tesla would be ‘obliterated’ once the company fully solved autonomy.

Despite Musk’s confidence, Tesla’s stock is now struggling, and hedge funds are taking advantage of the downturn.

Is Tesla’s Stock Becoming a Meme?

Some analysts argue that Tesla’s stock movements have become detached from reality.

“A lot of these momentum stocks [like Tesla] have become glorified memecoins,” said Marc Cohodes, a well-known short seller.
“When they went up, everyone thought they were smart. Now they’re falling, and they’re causing huge damage.”

Notably, some major investment firms still believe in Tesla’s potential:

• Hedge fund Bridgewater Associates recently opened a long position in Tesla.
• ClearBridge, DE Shaw, and Norges Bank have increased their Tesla stakes despite the recent market turmoil.

Conclusion: What’s Next for Tesla?

Tesla’s dramatic share price crash has delivered massive profits for short sellers, but the future remains uncertain.

If Musk’s political controversies, trade tensions, and government cuts continue to weigh on investor confidence, Tesla’s downward spiral may not be over. However, strong long-term believers in the company could still push for a recovery.

For now, hedge funds that once suffered betting against Tesla are finally celebrating their long-awaited victory—but the battle over the company’s true value is far from over.

Sources: (FT.com, ChatGPT)