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Hedge funds that bet against Tesla incurred significant losses following Donald Trump's victory in the recent presidential election. According to a Bloomberg report, these investment firms saw an on-paper loss of at least $5.2 billion between Election Day and the close of the market on Friday. Bloomberg's calculations, based on data compiled by S3 Partners, show that the dramatic rise in Tesla's stock has heavily impacted those with short positions in the electric vehicle company.

Over the past four months, several funds had begun unwinding their bets against Tesla, despite ongoing challenges for electric vehicle makers such as tariffs, low consumer demand, and heightened industry competition. A noteworthy shift occurred after Elon Musk publicly endorsed Trump on July 13, following an assassination attempt on the former president. Based on data from Hazeltree, which tracks more than 500 hedge funds, the majority of these funds started to retract their short positions soon after.

Since Election Day, Tesla's shares have surged by about 40%, translating to over $200 billion in additional market value. This surge pushed Tesla's valuation past the $1 trillion mark on Friday, which caused a scramble among hedge funds to reverse their short bets. According to Hazeltree data, only 7% of hedge funds were net short on Tesla the day after the election, down from 17% in early July. Conversely, only 8% of hedge funds are net long on Tesla stock.

While Tesla's shares have seen a remarkable 39.2% rise so far this year, the broader electric vehicle sector has not fared as well, experiencing a decline of more than 12% year-to-date. This performance is reflected in the KraneShares Electric Vehicles and Future Mobility Index ETF. Additionally, Tesla's stock performance stands in stark contrast to the wider clean energy sector, which saw declines following Trump's win.

Elon Musk, now the richest person in the world with a net worth of $304 billion according to Forbes, has been one of Trump’s most prominent supporters during the campaign. Musk's contributions included over $100 million to a pro-Trump PAC and a $1 million-a-day sweepstakes to encourage early voting. Despite concerns that Trump's return to the White House may bring anti-EV policies, the close relationship between Trump and Musk has seemingly spurred Tesla's recent stock success.

Per Lekander, CEO of hedge fund manager Clean Energy Transition, cautions that Trump’s win could be detrimental to Tesla as an auto company. He predicts that within the next 12 to 18 months, the Trump administration may eliminate many of the subsidies that Tesla benefits from. However, Musk's burgeoning influence is clear, as he plans to lead a government efficiency commission proposed by Trump, which could ease regulatory hurdles for fully autonomous EVs, a critical challenge for Tesla.

This surge in Tesla’s stock value following the election victory has once again put short sellers in a difficult position, reminiscent of their losses after Tesla reported an unexpected profit in 2019.