Tesla's $2.75 Billion Short Bet in 2019: Why Bears Are Winning Big
Explore how Tesla became the most lucrative short-selling opportunity in 2019, with investors profiting billions amid rising concerns over the electric car maker's financial health and market performance.
Tesla Inc. (TSLA) investors bullish on the electric vehicle giant have faced significant challenges this year, as the company's stock has dropped over 30%, marking its steepest annual decline ever. Meanwhile, short sellers have capitalized on this downturn, earning an impressive $2.75 billion in mark-to-market gains, making Tesla the top short bet in the U.S. market for 2019, according to Bloomberg.
The stock plummeted another 6.5% during a recent market sell-off, further boosting profits for those betting against Tesla.
Implications for Investors
Data from S3 Partners as of August 9 reveals that Tesla short sellers’ profits are more than three times greater than the next highest short bet, AbbVie Inc. (ABBV), which has generated approximately $776 million in gains. DuPont de Nemours Inc. (DD) ranks third with around $631 million earned from bearish positions this year.
Elon Musk, Tesla’s CEO, has frequently criticized these short sellers—whom he calls “value destroyers”—especially after his 2018 warning about a potential "short burn of the century." Despite his efforts to discredit them, market realities have favored the bears.
The negative sentiment is fueled by declining earnings forecasts and price targets, with analysts expressing concerns about Tesla’s quarterly losses, mounting debt, management challenges, and weakening domestic vehicle demand. The Wall Street Journal reports that U.S. new vehicle sales are expected to fall below 17 million units for the first time since 2014, impacting the entire automotive industry.
Tesla’s second-quarter earnings report underscored these issues, with shares dropping nearly 10% after revealing an adjusted loss per share of $1.12—significantly worse than the anticipated 40 cents—and revenues slightly below expectations at $6.35 billion, according to CNBC. These results followed a first-quarter performance marked by larger-than-expected losses and a 37% revenue decline from the previous quarter.
Future Outlook
These disappointing financial results have reinforced short sellers’ confidence, with mark-to-market gains on Tesla shorts reaching $1.07 billion by mid-May. George Schultze, founder of Schultze Asset Management, shared with Business Insider that, "If I had to make a new bet today, I’d put on a new short," citing Tesla’s ongoing debt concerns.
Given the company’s current outlook, many short sellers anticipate even greater profits as Tesla’s challenges persist.
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