Hedge Funds Bet Against Tesla, But Now Face Losses as Share Price Soars
Introduction
Hedge funds had piled into short bets against Tesla Inc. just before the electric vehicle maker announced a set of numbers that triggered a significant share-price rally. About 18% of the 500-plus hedge funds tracked by data provider Hazeltree had an overall short position on Tesla at the end of June, the highest percentage in more than a year. This contrarian bet now threatens to saddle the hedge funds behind them with losses.
Tesla’s Recent Performance
Tesla’s latest vehicle-sales results, published on July 2, revealed second-quarter deliveries figures that beat average analyst estimates, even though sales were down. Investors pounced on the news, driving the company’s shares to a six-month high. Since the beginning of June, Tesla’s share price has now soared about 40%.
Industry Challenges
The electric vehicle (EV) industry is facing several challenges, including tariff wars and identity politics. Some consumers are rejecting EVs as a form of "woke" transport. In the US, Donald Trump has said that if he becomes president again after November’s election, he’ll undo existing laws supporting battery-powered vehicles, calling them "crazy." However, Trump is a "huge fan" of Tesla’s Cybertruck, according to Elon Musk, the EV giant’s chief executive officer.
Internal Disruptions at Tesla
Tesla is also dealing with internal disruptions. In April, Musk told staff to "brace for major job cuts," with sales roles among those affected. The Cybertruck, Tesla’s first new consumer model in years, has been slow to ramp up.
Hedge Fund Perspectives
Some hedge fund managers have decided the stock is off bounds altogether. Tesla is "very difficult for us to position," said Fabio Pecce, chief investment officer at Ambienta, where he oversees $700 million, including managing the Ambienta x Alpha hedge fund. However, "if Trump wins, it is truly going to be very positive" for Tesla, though "obviously not amazing for EVs and renewables in general," he said.
Investor Sentiment
Investors ended 2023 declaring they’d likely retreat further from green stocks in general, and EVs specifically, according to a Bloomberg Markets Live Pulse survey. Almost two-thirds of the 620 respondents said they planned to stay away from the EV sector, with close to 60% expecting the iShares Global Clean Energy exchange-traded fund to extend its slide in 2024.
Conclusion
The electric vehicle industry is facing several challenges, including tariff wars, identity politics, and internal disruptions at Tesla. Hedge funds that bet against Tesla are now facing losses as the company’s share price soars. While some hedge fund managers have decided the stock is off bounds altogether, others believe that if Trump wins, it could be positive for Tesla. Investors are cautious about the EV sector, with many planning to stay away or expecting the iShares Global Clean Energy ETF to extend its slide in 2024.
FAQs
Q: What percentage of hedge funds had a short position on Tesla at the end of June?
A: About 18% of the 500-plus hedge funds tracked by data provider Hazeltree had an overall short position on Tesla at the end of June.
Q: What was the outcome of Tesla’s latest vehicle-sales results?
A: Tesla’s latest vehicle-sales results revealed second-quarter deliveries figures that beat average analyst estimates, even though sales were down.
Q: What are some of the challenges facing the electric vehicle industry?
A: The electric vehicle industry is facing several challenges, including tariff wars, identity politics, and internal disruptions at Tesla.
Q: What is the current sentiment among investors towards the EV sector?
A: Investors are cautious about the EV sector, with many planning to stay away or expecting the iShares Global Clean Energy ETF to extend its slide in 2024.
Q: What is the outlook for Tesla’s share price?
A: Tesla’s share price has soared about 40% since the beginning of June, and some analysts believe it could continue to rise if the company’s financial performance improves.
Author: fortune.com
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