Hedge funds that bet against Tesla Inc. have incurred significant losses following Donald Trump’s presidential election victory, with the fallout directly tied to the close relationship between the president-elect and Elon Musk. Between Election Day and the market close on Friday, hedge funds with short positions against Tesla saw on-paper losses of at least $5.2 billion, according to Bloomberg calculations based on data from S3 Partners.
These funds were part of a shrinking group that had been caught off guard by Tesla’s strong performance, as many hedge funds adjusted their positions earlier this year, coinciding with Musk’s endorsement of Trump in July.
Musk, Tesla’s CEO and the world’s richest person, has become one of Trump’s most prominent billionaire supporters. By aligning himself with Trump, Musk has not only boosted the president-elect’s campaign but also positioned himself for political influence, as Trump has signaled his intention to reward loyal supporters.
Per Lekander, CEO of Clean Energy Transition, a hedge fund manager, he held a small short position in Tesla leading into the election but had already reduced it significantly. As a result, his losses were “pretty small.” However, he still acknowledged the financial setback.
Since Trump’s victory on November 5, Tesla’s stock has surged nearly 30%, adding over $200 billion to its market capitalization. This rapid rise has prompted hedge funds that were short on Tesla to reverse their positions. According to Hazeltree data, only 7% of hedge funds were net short Tesla as of November 6, down from 17% in July, while just 8% of funds held long positions.
Despite the gains for Tesla, shorting the stock has proven to be a dangerous move for hedge funds, even as the broader electric vehicle (EV) sector faces challenges such as trade tensions, declining consumer demand, and heightened competition. In contrast to the broader EV sector, which has dropped over 12% this year, Tesla’s stock has risen by approximately 30%, following a remarkable 100% increase in 2023.
Tesla’s performance stands in stark contrast to other stocks in the green sector, especially renewables. Following Trump’s victory, stocks in wind, solar, and other clean-energy industries have faced significant declines, as fears mount that Trump will follow through on his promises to slash clean-energy incentives.
Despite benefiting from the current rally, Lekander predicts that Tesla will eventually feel the impact of Trump’s anti-climate policies in 12 to 18 months. He argues that the Trump administration will phase out many of the subsidies that Tesla has relied on, making the company’s position as a market leader more uncertain.
Musk, who has expressed interest in a role within Trump’s administration, particularly in cutting government inefficiency, could leverage his political influence. Trump has openly considered offering Musk the position of “Secretary of Cost Cutting,” further solidifying their close relationship.
Edward Lees, a portfolio manager at BNP Paribas Asset Management, notes that Musk now holds a unique position bridging the tech world and Washington, and has been a significant force behind Tesla’s stock surge. Musk’s fortune has also soared, with Tesla’s stock price adding $50 billion to his wealth since the election, according to the Bloomberg Billionaires Index. Musk’s substantial financial contributions to Trump and other Republicans in competitive House races have only deepened his ties to the president-elect.
Lekander estimates that Trump’s influence accounts for around a third of Tesla’s current share price, pushing the stock into speculative territory. “Tesla’s stock is now largely a bet on how much Trump can help Musk,” he concluded.
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