Tesla’s stock decline fuels $16.2 bn in hedge fund short seller profits

Hedge fund short sellers have made $16.2 billion betting against Tesla’s stock as the electric car company’s market value has halved over the past three months, according to data from S3 Partners. The sharp decline has erased over $700 billion in market capitalisation, cutting more than $100 billion from Elon Musk’s net worth, as reported by the Financial Times.

Tesla’s brand under pressure

The downturn follows Musk’s controversial public interventions in European politics, where his support for far-right parties has alienated consumers, leading to declining car sales across the continent. Additionally, Musk’s cost-cutting measures as head of the federal Department of Government Efficiency have sparked criticism.

“Tesla had a very strong brand value, and Elon has managed to totally destroy it,” said Per Lekander, managing partner at Clean Energy Transition, a hedge fund that has been shorting Tesla for years. “[Musk] is on the wrong side of his buyership. It’s not people with cowboy boots who buy Teslas.”

JPMorgan analysts lowered their year-end price target for Tesla to $120 from $135, citing concerns about the brand’s rapid decline. “We struggle to think of anything analogous in the history of the automotive industry, in which a brand has lost so much value so quickly,” they wrote. Tesla’s shares closed at $238.01 on Monday.

Short sellers regain momentum

The profits for short sellers mark a significant turnaround after years of heavy losses. Since Tesla went public in 2010, traders betting against the company have faced $64.5bn in cumulative losses, even after factoring in recent gains.

The number of Tesla shares being shorted has increased by 16.3% over the past month to 71.5mn, or 2.6% of total shares, amid a broader market sell-off driven by concerns over the economic impact of US President Donald Trump’s aggressive tariff policies. Tesla’s stock had initially surged following Trump’s re-election, as investors anticipated benefits from Musk’s close ties to the administration. However, the recent slump has erased those gains.

Tariff concerns and missed earnings

Tesla’s fourth-quarter results in January fell short of expectations, further unsettling investors. The company also warned that Trump’s escalating trade war could expose it to retaliatory tariffs, increasing production costs in the US and pressuring profit margins.

For years, Tesla was one of the most shorted stocks in the US market, with as many as 300mn shares shorted in early 2020. However, a meteoric 1,500% rally between 2019 and mid-2021 forced many short sellers to abandon their positions, despite continued concerns that Tesla’s valuation was disconnected from its financial fundamentals.

Musk’s history with short sellers

Musk has often taunted short sellers, previously claiming that they would be “obliterated” once Tesla “fully solves autonomy.” In 2020, he mocked short seller David Einhorn’s criticism of Tesla’s accounting, tweeting: “Mental illness is tragic & did you know that Einhorn means unicorn?”

A volatile market for Tesla bulls and bears

While short sellers have profited from Tesla’s decline, some major hedge funds have increased their holdings. Bridgewater Associates opened a new long position in Tesla in late 2024, while ClearBridge, DE Shaw, and Norges Bank also expanded their stakes, according to 13F filings.

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