Once-burned hedge funds now shy to short Tesla amid extended stock plunge

Hedge funds whose short positions against Tesla Inc. backfired badly after the Nov. 5 election are watching the latest selloff from the sidelines, for fear of being burned again.

After losing more than $5 billion in the days after Donald Trump was voted back into the White House, Tesla short-sellers now have a position equivalent to just 2.5% of the company’s publicly traded shares, according to data compiled by S3 Partners. That’s well below the historical average of about 23%, according to Bloomberg-compiled data.

Tim Smith, managing director of data insights at Hazeltree, said the reality is funds that maintained their shorts against Tesla for extended periods in the past have lost money, which helps explain why they’re now “cautious.” 

But so far this year, that caution has come at a cost. Tesla’s share price is now down more than 40% since the end of December, equivalent to about $540 billion of lost market value. 

Kerry Goh, chief executive officer at Kamet Capital Partners Pte, said his hedge fund hasn’t shorted Tesla since 2019. He views the current selloff as “temporary” and warns that there’s “no predictable pattern” to shorting Tesla. 

“Nobody knows how to play this trade,” said Goh, who oversees more than $1 billion from his base in Singapore.

Per Lekander, CEO of Clean Energy Transition LLP, said his firm has a moderate short position, “just to manage the risk.” It’s about “just keeping it at a level where if there is a massive rip, I wouldn’t lose too much,” he said.

Election Bump

Tesla’s stock soared after the Nov. 5 election as the company’s fortunes became increasingly linked to CEO Elon Musk’s central role in Trump’s inner circle. Trump himself has gone to unconventional lengths to bolster Musk’s image and business directly. Just last week, he pledged to buy a Tesla during an event on the White House lawn at which several Tesla models were showcased.

The episode, which briefly buoyed Tesla’s share price, feeds into a never-ending churn of Tesla headlines since the election. Many have focused on the electric-vehicle maker’s woes in Europe. All have contributed to the stock’s volatility.

The Tesla shorts have learned that “when things start to go against you, you absolutely need to run for the hills,” Lekander said.

The London-based hedge fund manager, who runs a team that oversees about $2.7 billion, said he was short Tesla most of last year until it became clear that Musk’s relationship with Trump was about to change everything. He then closed out the short, before returning to the bet at the beginning of the year.

Others have voiced similar wariness. Muddy Waters Capital CEO Carson Block has said he wouldn’t bet against Musk despite the risk that he’s doing “irreparable damage” to the company. 

Related reading: UBS on the hook for $92.2 million in damages linked to advisor’s short sales of Tesla

That damage includes driving down sales in Europe as consumers in the region balk at Musk’s efforts to interfere in their elections. And the Tesla CEO’s antics as chief architect of the Department of Government Efficiency (DOGE) are now also angering many Americans, recent polling suggests.

In Germany alone, Tesla registrations plunged more than 70% during the first two months of the year after Musk endorsed the far-right Alternative fuer Deutschland party in the lead-up to the country’s Feb. 23 election. And Tesla’s deliveries from its Shanghai factory have fallen for the past five consecutive months, year-on-year data show.

Meanwhile, Trump’s tariffs are hurting Tesla’s ability to do business, with the EV maker warning it now faces higher manufacturing costs that risk making its vehicles less competitive in international markets. 

Short sellers who stuck with their Tesla bets have made gains of close to $18 billion since a December high, according to Bloomberg calculations based on data compiled by S3 Partners. But those on-paper winnings feed into a very mixed picture when it comes to assessing Tesla’s fate.

According to a recent survey by Morgan Stanley, 85% of respondents think Musk’s political activities are having either a negative or an extremely negative impact on Tesla’s business. Despite such feedback, 45% of those surveyed expect the stock to rise, compared with just 36% who expect it to go down.

Morgan Stanley itself is advising investors to go overweight on Tesla, with analysts including Adam Jonas describing the current pullback as “a buying opportunity,” in a March 14 note. It’s a recommendation that matches the general mood.

On average, analysts tracking Tesla expect the stock to rise more than 50% over the next 12 months, according to price targets compiled by Bloomberg. That gap largely reflects Tesla’s volatile stock price in recent months. During its torrid post-election rally, shares soared more than 70% above Wall Street’s average price target. 

Dan Ives, senior equity research analyst at Wedbush Securities, said he thinks Tesla is “way oversold for what I view ultimately as a $2 trillion valuation as we look out the next 18 to 24 months.” However, Musk only has four to six weeks to persuade investors of the business case, according to Ives. “The last thing you want to see Tesla become is a political symbol,” he said.

Lekander said it would be unwise to take out a large Tesla bet before June, which is when the company expects to launch an unsupervised self-driving taxi service. It’s a “really, really important event” for investors, he said.

Fundamentally, Lekander said he thinks Tesla is “the biggest stock market bubble in world history.” In practice, however, “you have to be careful.”