Tesla’s stock surge is a win for investors — and a big loss for hedge funds

Tesla’s stock surge is a win for investors — and a big loss for hedge funds

Shares have fiercely rebounded over the past month, gaining more than 40%

Tesla’s explosive stock surge is proving to be a major win for investors — and a sizable blow for some hedge funds.

Roughly 18% of the more than 500 hedge funds tracked by data provider Hazeltree had taken short position on the stock by the end of last month, Bloomberg reports. That’s the highest percentage in more than a year, up from less than 15% in March.

And, at the time, taking a short was a solid bet. Before a recent string of wins for the Austin, Texas-based company, beginning with investors showing their support for CEO Elon Musk’s $56 billion compensation package last month, Tesla had been one of the worst performers in the S&P 500.

Tesla had repeatedly told investors not to expect much growth this year and underperformed during the first quarter, which sparked concerns over a possible demand issue. Since April, Tesla has laid off at least 14% of its workforce and several executives have left the company, including leaders overseeing public policy and EV charging.

The positions also came in just days before Tesla would announce how many vehicles it sold and made during the April to June quarter. Wall Street analysts slashed their estimates in the weeks leading up the July 2 reveal, forecasting roughly 436,000 deliveries.

Then Tesla nudged past those lowered expectations, saying it delivered just shy of 444,000 EVs. Investors were ecstatic, pumping the stock to a six-month high and raising the bar for second-quarter results, which Tesla is expected to announce on July 23.

“In a nutshell, the worst is in the rear view mirror for Tesla as we believe the EV demand story is starting to return to the disruptive tech stalwart ahead of a historical Robotaxi Day on August 8th,” Wedbush Securities analyst Dan Ives said last week.

While Tesla bulls like Ives and ARK Investment Management’s Cathie Woods are forecasting greater highs for Tesla, largely due to Musk’s promises of humanoid robots and self-driving cars, hedge funds are more wary.

That’s partly due to Tesla’s displayed issues over the past few months, as well as the potential ramifications of the U.S. presidential election. President Joe Biden is an ardent supporter of EVs and environmental goals, while rival and ex-president Donald Trump has historically railed against them.

Trump has claimed electric cars will “kill” the U.S. auto industry, called them an “assassination” of jobs, and said imported EVs from Mexico will cause a “blood bath.” However, he’s also shown himself to be a fan of Musk and Tesla’s Cybertruck and has spoken with the Tesla CEO repeatedly over the past year.

Tesla is “very difficult for us to position,” Ambienta chief investment officer Fabio Pecce told Bloomberg, because of its recent complications and the potential outcome of the November election. Pecce told Bloomberg that “if Trump wins, it is truly going to be very positive” for Tesla, but “obviously not amazing for EVs and renewables in general.”

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