Hedge Funds Shorting Tesla Just Lost Over $5 Billion

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(Bloomberg) — Since Donald Trump’s election win, the hedge funds clinging on to bets against Tesla Inc. have lost billions of dollars, as they feel the fallout of the special relationship between the president-elect and Elon Musk.

Hedge funds that had short positions against Tesla between election day and Friday’s close took an on-paper hit of at least $5.2 billion, according to Bloomberg calculations based on data compiled by S3 Partners. 

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They were among a shrinking group that caught on, as more of their peers bet against Tesla in the past four months, according to separate data provided by Hazeltree that tracks the positions of more than 500 hedge funds. That reshuffle coincided with Musk’s endorsement of Trump on July 13.

Tesla’s chief executive has emerged as a big fan of Trump’s billionaires. Musk has used his position as the world’s richest man to turbocharge Trump’s campaign, making him one of the biggest donors in the 2024 election. Joining his hand with the president-elect now points Musk to a position of political influence, as Trump makes it clear he plans to reward loyalists.

Per Lekander, CEO of the hedge fund manager, Clean Energy Transition, says “Tesla has little time in the run-up to the election.” He was able to downgrade “significantly,” meaning his losses ended up being “very small.”

“But we lost some money,” he said.

Since the November 5 election, Tesla shares have gained nearly 30%, representing more than $200 billion in additional market value. Against that, hedge funds that had been building short bets against the company have rushed to reverse course.

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As of Nov. 6, only 7% of hedge funds were net short Tesla, down from 17% in early July, according to weekly data provided by Hazeltree. That said, only 8% remains in long stocks.

Tesla proved a risky stock to short, as the entire EV industry struggles due to trade disputes, flagging consumer demand and increasing competition. In July, nearly one-fifth of the hedge funds tracked by Hazeltree had built bets against Tesla, only to err after the company revealed sales figures that sparked the rally.

The broader EV sector, meanwhile, has lost more than 12% this year, based on the performance of the KraneShares Electric Vehicles and Future Mobility Index ETF. That follows a decline of about 9% by 2023. In contrast, Tesla is up almost 30% in 2024, after doubling its value last year.

Tesla’s performance also stood out compared to other stocks in the green sector. As markets digested the news of Trump’s victory, renewable stocks from wind to solar began to rally, amid fears that Trump would follow through on his promise to cut clean energy incentives.

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Lekander says that in just over a year from now, he expects even Tesla to feel the sting of Trump’s anti-climate policies.

Despite the connection between the president-elect and Musk, “Trump’s success is very bad for Tesla as a car company,” Lekander said. In about 12 to 18 months, the Trump administration will “remove many of the subsidies that Tesla was winning.”

Musk has asked for a role in the Trump administration that would allow him to cut what he describes as government red tape and waste. Trump was quick to latch on to the idea, publicly toying with the idea of ​​a job as “Cost-Cutting secretary” for Tesla’s CEO.

“Musk’s position of influence is now a kind of bridge between, arguably, the technology community and Washington,” said Edward Lees, portfolio manager at BNP Paribas Asset Management.

Lees says he “holds Tesla in various positions,” without elaborating on current positions.

Musk, who came out in support of Trump after the then-president survived an assassination attempt in July, has seen his fortunes rise over the election results. In the days following the election, Tesla’s stock price surge added $50 billion to his net worth, according to the Bloomberg Billionaires Index. That’s after Musk, who oversees an empire of six companies that includes X and Space X, spent more than $130 million on Trump and voted down Republicans in competitive House races.

Lekander says he thinks Trump’s result is worth about a third of Tesla’s current share price of more than $300. “Now Tesla’s stock is a test of how much Trump can help Elon,” he said.

—With help from Craig Trudell, Abhishek Vishnoi, Lisa Pham and Rob Dawson.

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