Hedge funds burned by Tesla short bets plot next steps

Hedge funds burned by Tesla short bets plot next steps

  • 19.03.2025 21:05
  • bostonglobe.com
  • Keywords: Short Selling, Market Volatility

Hedge funds that bet against Tesla lost billions after Trump’s re-election and are now cautiously avoiding short positions due to past failures. Despite Tesla’s over 40% stock decline this year, experts remain divided, with some seeing it as a buying opportunity while others warn of ongoing risks tied to Musk and politics.

Tesla NewsMS/PLsentiment_satisfied
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Estimated market influence

Tesla Inc.

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Analyst rating: N/A

Hedge funds have incurred significant losses due to short bets against Tesla.

Morgan Stanley

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Analyst rating: —

Advising investors to go overweight on Tesla stock, expecting a rise.

Context

Analysis of Hedge Fund Performance and Market Implications

Hedge Fund Performance

  • $5 billion loss: Hedge funds specializing in shorting Tesla incurred losses exceeding $5 billion following Trump's re-election.
  • Short position decline: Short positions against Tesla now account for only 2.5% of its shares, down from the historical average of ~23%.
  • Tesla share price drop: Since December end, Tesla’s stock has fallen over 40%, eroding $550 billion in market value.

Market Volatility and Trends

  • Political influence: Post-election, Tesla's stock surged due to its ties with Trump and Musk's role in the White House.
  • European sales decline: Tesla registrations in Germany dropped >70% post-Musk's political endorsement, impacting overall European sales.
  • Self-driving service launch: Anticipation of Tesla's unsupervised self-driving taxi service by June 2025 is seen as a potential market mover.

Competitive Landscape

  • Hedge fund caution: Many funds have reduced or eliminated their short positions against Tesla due to past losses and unpredictability.
  • Musk’s influence: Musk's political activities are viewed as risky, with 85% of respondents in a Morgan Stanley survey believing they negatively impact Tesla.
  • Analyst sentiment: Despite risks, 45% of surveyed investors expect Tesla stock to rise, with analysts predicting a >50% increase over the next year.

Strategic Considerations

  • Regulatory risks: Trump's tariffs and trade policies are seen as threats to Tesla’s global competitiveness.
  • Investor sentiment: The market remains volatile, with short-term gains for shorts (near $18 billion) offset by long-term uncertainty.
  • Morgan Stanley advice: The firm recommends investors go overweight on Tesla, citing the current dip as a buying opportunity.

Long-Term Implications

  • Bubble concerns: Lekander describes Tesla as "the biggest stock market bubble in world history," highlighting fundamental risks.
  • Strategic bets: Analysts advise caution until key events like the self-driving service launch, with potential for significant market shifts.