Last week, a social media post from Elon Musk caused many people to stop what they were doing and look down at their phones. Even for the Tesla (TSLA) CEO, known for his controversial and bold opinions, what they saw seemed surprising.
Musk had previously announced plans to cease his political spending. But only a few days later, he accused Trump of having direct ties to notorious criminal Jeffrey Epstein and alleged that without his help, the Republican president would not have won last year’s election.
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Since then, Tesla has been in the spotlight, as the dispute between two of the world’s most powerful men continues. While TSLA stock initially plunged on news of the argument, it has since regained some of its momentum.
Even as shares slowly trend upward, though, experts speculate that short sellers may regard the Musk-Trump fallout as an opportunity to bet against the stock.
Elon Musk’s falling out with President Donald Trump has led to some short sellers doubling down on their bets against his company.
Image source: Apu Gomes/Getty Images
The bears may be closing in on Tesla stock
Over the past few months, Musk’s behavior has sparked a global backlash against Tesla’s brand, causing sales to fall across the U.S. and Europe. This clear indication of consumer sentiment toward him has caused some financial experts, including Tesla shareholder and fund manager Ross Gerber, to call for him to step down.
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When Musk announced that he would be stepping back from his role with the Department of Government Efficiency (DOGE), TSLA stock surged, and some investors speculated that the company’s troubles were over. But now his falling out with Trump has generated further uncertainty.
When a prominent company starts showing signs of weakness or instability, short sellers are likely to start closing in. So far, Tesla’s recent declines have been highly profitable for those willing to bet against it. The Wall Street Journal reports that as TSLA stock plunged last week, short sellers pocketed up to $4 billion, noting:
“Investors have made $7 billion betting against Tesla year-to-date, a roughly 30% return. Elon Musk’s company is currently the second most shorted stock in the U.S. by total value of the position, with around $27.7 billion of shares sold short, according to S3.”
Betting against an industry-leading company like Tesla will always carry some risk, regardless of how bleak its prospects may appear. But experts see a case for shorting TSLA stock, provided investors understand its volatile nature, which includes surging unexpectedly.
“I think Musk dragged Tesla into a political spectacle,” Galileo FX CEO David Materazzi tells TheStreet. “That creates perceived instability. Short sellers don’t need real damage, just the illusion of it. Volatility invites them in. When the CEO becomes the story, the stock turns into a target.”
Financial education platform First Information’s CEO Vince Stanzione holds a short position in TSLA. He says his reasons are “business not personal,” however, citing the company’s high valuation and questionable market share over the feud between Musk and Trump.
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“The P/E ratio is over 100 and growth the last few years has been near zero,” he says of Tesla.
“The bulls will say you’re paying for the future and Elon Musk’s brilliance, and I am not disputing that Tesla could have some future hits in the pipeline, but Elon Must is very good at promising “jam tomorrow” which never seems to materialize, or if and when it does, it’s not the flavour he promised.”
Is it time to bet against Tesla stock?
Stanzione also raises a concern regarding Tesla’s foray into robotics, something on which Musk has hinged a lot of the company’s prospects. This part of Tesla’s business just became more complicated due to the abrupt departure of one of its leaders.
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“Unless robotaxis start showing up en masse by the end of this year, then investors will keep selling,” states Stanzione. “I am very bullish on robotics. It’s something I have been investing in for over a decade, especially in medical and military uses, however, Tesla is not the only game in town.”
He names rivals such as Hyundai Motor Group and Boston Dynamics, both of which are making notable advances in the robotics field that could threaten Tesla’s progress.
Daytrading.com Chief Analyst Dan Buckley also highlights the potential valuation problem, stating “Tesla short sellers may see their edge in the long-term mismatch between its ~$1 trillion valuation and the current reality of its business – i.e., nearly all auto-based revenue – and the uncertain viability of its highly speculative emerging tech bets.”
That said, Buckley advises investors considering a Tesla short to “treat political feuds as a volatility amplifier rather than a directional signal” and highlights the importance of caution when betting against such an unpredictable stock.
Related: Billionaire fund manager, skeptical of AI, backs shocking stock
