Bearish gain $16 billion profit as Tesla shares plunge

Bearish hedge fund sellers have made $16.2 billion (E14.85 billion) betting against Tesla shares as the value of Elon Musk's electric car company has halved over the past three months.

Traders looking to profit from the falling share price have piled on the gains since the high recorded at the close on Dec. 17, according to data provider S3 Partners. Tesla's market value has plummeted by more than $700 billion over that same period, erasing more than $100 billion from Musk's net worth.

The Tesla CEO'spublic interventions in European politics, including his support for far-right parties, have contributed to the drop in car sales across Europe, while the drastic cuts he is implementing to federal government spending as head of the so-called Department of Government Efficiency have also provoked a negative reaction.

"Tesla had very strong brand equity and Elon has managed to completely destroy it," says Per Lekander, managing partner of the $1.5 billion hedge fund Clean Energy Transition, which was the first to take short positions in Tesla several years ago. "[Musk] is on the wrong side of the buyers. It's not people in cowboy boots buying Teslas."

Last week, JPMorgan cut its year-end price target for Tesla from $135 to $120, writing in a note, "We struggle to imagine a similar instance in the history of the auto industry where a brand has lost so much value so quickly." Shares closed at $238.01 on Monday.

The recent gains by bearish investors mark a partial reversal of what has been a very painful strategy for them in recent years. Many hedge funds were forced to abandon their negative bets as losses mounted. Short sellers' losses total $64.5 billion since Tesla went public in 2010, even after accounting for recent gains.

The number of Tesla shares in short positions has risen 16.3% in the past month to 71.5 million, or 2.6% of the company's total shares, according to S3, amid broader widespread selling in the U.S. stock market driven by fears over potential economic damage caused by U.S. President Donald Trump's aggressive tariffs.

The recent drop in Tesla's share price has erased gains posted after the election, when investors pounced on the stock on hopes that it would benefit from Musk's proximity to Trump.

Tesla's fourth-quarter results released in late January fell short of expectations, and the company warned last week in a letter to a U.S. trade representative that Trump's trade war could leave it exposed to retaliatory tariffs that would increase the cost of manufacturing vehicles in the country.

For years, the automaker ranked among the most popular bearish bets in the U.S. stock market, with about 300 million shares in short positions since the spring of 2020.

But a rally of more than 1500% recorded in the two years to mid-2021 threw those negative bets to the wind, even as some investors maintained that the company's valuation was increasingly detached from economic reality.

Musk has a history of deriding Tesla short sellers, large and small. Last year, he claimed that anyone with a short position would be "wiped out" once the company "fully solves autonomy."

In 2020, in response to bearish salesman David Einhorn's criticism of Tesla's accounting methods, Musk claimed, "Mental illness is tragic, and did you know that Einhorn means unicorn?"

Trump's second term in office is making for quite a ride for both those with long and short positions in Tesla. Hedge fund Bridgewater Associates opened a new long position in Tesla in Q4 2024, while ClearBridge, DE Shaw and Norges Bank increased their existing holdings, according to 13F filings. Bridgewater declined to comment. ClearBridge, DE Shaw and Norges Bank did not respond to requests for comment.

"A lot of these momentum stocks [like Tesla] have become glorified meme currencies," says Marc Cohodes, a California-based bearish investor who has no positions in Tesla. "When they went up, everyone who bought thought they were smart. Now that they're going down, they're doing enormous damage."

© The Financial Times Limited [2025]. All rights reserved. FT and Financial Times are registered trademarks of Financial Times Limited. Redistribution, copying or modification is prohibited. EXPANSIÓN is solely responsible for this translation and Financial Times Limited is not responsible for the accuracy of this translation.