Tesla Shares Plunge Fueling Hedge Fund Short Sellers

Hedge funds have capitalised significantly on the dramatic decline in Tesla’s share price over the past three months, with short-sellers reportedly reaping more than $16 billion in paper profits. The electric car manufacturer’s stock has halved in value since reaching a record high in mid-December, erasing approximately $700 billion from its market value. Elon Musk, Tesla’s CEO, has seen his personal fortune shrink by around $100 billion during this downturn.

The sell-off, according to industry analysts, has been driven by a combination of declining sales in Europe and China, growing protests over Musk’s workforce cuts within the federal government, and concerns about his ability to juggle his responsibilities at Tesla alongside leadership roles at SpaceX and the Department of Government Efficiency. These factors have contributed to heightened investor fears, which have culminated in intensified short activity against Tesla shares.

Data from S3 Partners reveals that the volume of Tesla shares being shorted has surged by 16.3 per cent in the last month to reach a total of 71.5 million, representing 2.6 per cent of the company’s shares. Hedge funds appear to have played this to their advantage, especially as the electric carmaker’s performance falters amidst broader economic fears that US trade policies and job cuts could lead to a recession.

In addition to Tesla’s internal challenges, the company remains affected by a broader sell-off in technology stocks. The so-called “Magnificent Seven” US tech giants have faced similar struggles, with investors increasingly risk-averse in light of economic uncertainty. Tesla, in particular, has taken steps to voice concerns about dampened global trade conditions, writing directly to the US trade representative to highlight the issue of retaliatory tariffs.

Market analysts, such as Dan Ives of Wedbush Securities, have described this as a critical moment for Elon Musk and Tesla. In a recent statement, Ives remarked that Musk’s perceived disengagement and focus on other commitments could harm Tesla’s brand further if left unchecked. He added that despite past moments of relief during crises, shareholders are now scrutinising Musk’s ability to steer the company forward.

This week, Tesla’s shares recorded additional losses, dropping by 4.8 per cent on Monday and 7.6 per cent on Tuesday. The slump has effectively erased all the gains that followed the US presidential election, during which investors anticipated Musk’s connections to the Trump administration would bolster the company’s prospects.