Trump Wins, Tesla Soars: Short-Sellers Suffer, Musk's Gains?

Trump Wins, Tesla Soars: Short-Sellers Suffer, Musk's Gains?Hedge funds that have been betting against Tesla have lost billions of dollars since Donald Trump won the US presidential election. This hedge fund meltdown is undoubtedly linked to the special relationship between the president-elect and Tesla CEO Elon Musk

Trump Wins, Tesla Soars: Short-Sellers Suffer, Musk's Gains?

Hedge funds that have been betting against Tesla have lost billions of dollars since Donald Trump won the US presidential election. This hedge fund meltdown is undoubtedly linked to the special relationship between the president-elect and Tesla CEO Elon Musk.

Data shows that short-sellers of Tesla lost at least $5.2 billion in the period between the election and Friday's closing bell. Securities firm Hazeltree, which tracks the positions of over 500 hedge funds, provides further data showing that many hedge funds have been covering their short positions in Tesla over the past four months, with the size of funds shorting Tesla decreasing steadily. This change coincides with Musk's public announcement of support for Trump on July 13th.

Among billionaires, Musk has become one of Trump's most visible supporters. He leveraged his position as the worlds richest man to push for Trumps candidacy and became one of the biggest donors in the 2024 US presidential election. Musk's close relationship with the president-elect could translate into potential political influence, as Trump has made it clear he will reward his loyal supporters.

Per Lekander, CEO of hedge fund management firm CleanEnergyTransition, revealed that he had "a small short position in Tesla before the election." He managed to significantly reduce his position, resulting in "relatively small" losses. He admitted, "We still lost some money, though."

Tesla's share price has surged nearly 30% since the US presidential election on November 5th, adding over $200 billion to its market capitalization. Faced with this situation, hedge funds that had previously shorted Tesla began to cover their positions. Weekly data from Hazeltree shows that as of November 6th, only 7% of hedge funds were net short on Tesla, down from 17% in early July. However, only 8% of hedge funds were net long.

While the entire electric vehicle industry faces headwinds like trade tensions, softening consumer demand, and intensifying competition, shorting Tesla has proven to be a risky endeavor. In July, nearly one-fifth of the hedge funds tracked by Hazeltree were shorting Tesla, but they were caught off guard when Tesla released strong third-quarter results, sending its share price soaring.

Meanwhile, according to the performance of the KraneShares Electric Vehicles & Future Mobility Index ETF, the overall electric vehicle sector has declined over 12% year-to-date, with a decline of approximately 9% in 2023. In contrast, Tesla's market value more than doubled last year and has increased by about 30% since 2024. Tesla's stock performance also stands out compared to other stocks in the green sector.

As the market digested the news of Trumps victory, renewable energy stocks like wind and solar energy began to decline amid concerns that Trump would fulfill his promise to roll back clean energy incentives. Lekander suggested that he anticipates Tesla will also feel the effects of Trump's anti-climate policies in more than a year.

Despite the close relationship between the president-elect Trump and Musk, Lekander claims that "Trump winning the election is very bad news for Tesla as a car company." He predicts that the Trump administration will "remove many of the subsidies that have benefited Tesla" in the next 12 to 18 months.

Musk has been lobbying for a position in Trump's administration, hoping to reduce what he sees as government bureaucracy and waste. Trump quickly reciprocated by publicly suggesting that Musk serve as Cost Reduction Minister."

Edward Lees, portfolio manager at BNP Paribas Asset Management, stated that Musk "now has a bridge, arguably, between the tech world and the US government." Lees mentioned that he had "bought Tesla stock at various points" but did not elaborate on his current position.

Musk publicly announced his support for Trump in July. Since the US presidential election results were announced, his personal wealth has surged alongside Tesla's stock surge. According to the Bloomberg Billionaires Index, Musk's net worth increased by $50 billion in the days following the announcement of the US presidential election results, driven by Tesla's stock gains.

Musk manages six companies, including X and SpaceX, and donated over $130 million to Trump and Republican-supporting campaign groups during the fiercely contested election.

Lekander estimates that the boost from Trump's victory accounts for roughly one-third of Tesla's current share price of over $300. He concluded, So, owning Tesla now is more like a bet on how much help Trump can give Musk.