#MuskAndTrump

[enterprisewired]

Tesla Short Sellers Face Multi-Billion Dollar Losses Amid Musk’s Alliance with Trump

https://enterprisewired.com/wp-content/uploads/2024/11/EW-11-11-2024-1-Tesla-Short-Sellers-Face-Multi-Billion-Dollar-Losses-Amid-Musks-Alliance-with-Trump-Source-economictimes.indiatimes.com_.jpg

Source: economictimes.indiatimes.com

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Since Donald Trump’s recent electoral victory, hedge funds shorting Tesla have experienced substantial losses. Many hedge funds, holding short positions on Tesla Inc., saw a combined on-paper loss exceeding $5 billion, Bloomberg reported, using data from S3 Partners. This financial blow stems from a sharp rally in Tesla’s stock price following Trump’s endorsement by Tesla CEO Elon Musk. In July, Musk publicly aligned himself with Trump, an alliance that has triggered considerable market shifts.

As Trump’s most high-profile billionaire supporter, Musk has leveraged his influence and wealth to back Trump’s campaign, becoming one of the 2024 election’s largest donors. His public support has led to speculation about potential political benefits, with Trump hinting at rewarding loyalists with roles in his administration. Following this alignment, Tesla’s shares soared by nearly 30%, creating a difficult situation for those who had held short positions on the stock. Consequently, many hedge funds have had to recalibrate their strategies to limit losses, as seen in Hazeltree’s data, which revealed that only 7% of hedge funds are now shorting Tesla, down from 17% in July.

Tesla Defies Broader EV Market Trends

Tesla’s performance starkly contrasts with the broader electric vehicle (EV) sector, which has faced numerous challenges, including slowing demand, trade tensions, and rising competition. According to the KraneShares Electric Vehicles and Future Mobility Index ETF, the EV market has declined by over 12% this year, following a similar dip in 2023. In contrast, Tesla has gained around 30% in 2024 alone, continuing its rapid growth after more than doubling in value the previous year.

This divergence highlights the risks of shorting Tesla, a company that has repeatedly outperformed industry trends. As recently as July, one in five hedge funds was shorting Tesla before the stock’s unexpected rally, which followed strong sales figures. This rally forced many to reverse their positions in the wake of Tesla’s sustained growth. Edward Lees, a portfolio manager at BNP Paribas Asset Management, describes Musk’s newfound political influence as a “bridge between the tech community and Washington,” positioning Tesla in a favorable light under the incoming administration.

Uncertain Future as Climate Policies Loom

While Musk’s close relationship with Trump may provide Tesla with short-term market confidence, some investors remain cautious about the long-term effects of Trump’s potential climate policies. Per Lekander, CEO of Clean Energy Transition, suggests that Trump’s win could eventually prove detrimental to Tesla as an automaker, particularly if clean energy incentives are slashed. Lekander anticipates that within 12 to 18 months, Trump’s administration could significantly reduce subsidies that have historically benefited Tesla, posing future challenges for the company.

Musk’s influence could secure him a governmental role, with Trump even suggesting the position of “Secretary of Cost Cutting” as a nod to Musk’s business acumen. If realized, such a position could grant Musk considerable leverage in reducing regulatory barriers. Nonetheless, some investors, including Lekander, believe Tesla’s reliance on government support could backfire if Trump follows through on his anti-climate policy promises.