Introduction: The Most Shorted Stock in the World
Between 2018 and 2021, Tesla ($TSLA) became one of the most polarizing stocks on Wall Street. While believers saw it as the future of the automotive industry, many hedge funds and institutional investors were convinced Tesla was overvalued and headed for collapse.
This led to one of the biggest short squeezes in stock market history, costing short sellers over $40 billion in losses.
What Led to the Tesla Short Squeeze?
Tesla had been a favorite target for short sellers for years. The reasons included:
- Production Issues – Tesla often missed delivery targets in its early years, and critics doubted its ability to scale.
- Elon Musk’s Behavior – Musk’s controversial tweets (e.g., "Funding secured" in 2018) led to legal battles with the SEC.
- High Valuation – Many analysts believed Tesla’s stock price was too high compared to traditional automakers.
- Negative Cash Flow – Tesla had years of unprofitability, leading to speculation that it would need continuous capital raises.
By early 2020, Tesla was the most shorted stock in the world, with hedge funds betting billions against it.
January 2020: Tesla’s short interest was 20% of its float, meaning 1 in every 5 shares was sold short.
February 2020: Tesla’s stock surged past $900, forcing early short sellers to cover.
The COVID-19 Crash and Tesla’s Surprise Recovery
March 2020: The stock market crashed due to COVID-19, and Tesla’s price dropped to $361 per share. Short sellers expected Tesla to collapse further.
April 2020: Tesla reported a surprise profit, boosting investor confidence.
June 2020: Tesla’s stock soared past $1,000 for the first time, forcing more short sellers to cover.
By mid-2020, Tesla was gaining momentum. The company was delivering more cars, opening new factories, and expanding into global markets. Retail traders, fueled by belief in Tesla and Elon Musk, started buying heavily.
The 2020 Tesla Short Squeeze – How It Happened
August 2020: Tesla Announces Stock Split
On August 11, 2020, Tesla announced a 5-for-1 stock split, making shares more affordable for retail investors.
After the announcement, Tesla jumped 81% in just three weeks.
December 2020: Tesla Joins the S&P 500
On December 21, 2020, Tesla officially joined the S&P 500 index, forcing index funds to buy billions worth of shares.
Tesla’s stock price soared to $695 by the end of 2020.
January 2021: Tesla Hits a Record High
Tesla’s stock continued rising, reaching $900 per share on January 25, 2021.
By this point, Tesla short sellers had lost over $40 billion, making it the biggest loss from short selling in history.
How Much Did Short Sellers Lose?
Biggest Short Seller Losses:
Jim Chanos (Kynikos Associates) – One of the most vocal Tesla bears, lost hundreds of millions.
David Einhorn (Greenlight Capital) – Lost millions, had to reduce short position.
Michael Burry (The Big Short) – Took a massive short position on Tesla but closed it before the final squeeze.
Tesla’s Financial Performance During the Short Squeeze (2019-2021)
Tesla’s Revenue Growth (2019-2021)
Tesla’s strong revenue and profit growth was a major reason for the stock surge.
Key Takeaways:
📌 Tesla’s revenue grew from $24.58B in 2019 to $53.82B in 2021—a 119% increase in 2 years.
📌 The company turned profitable in 2020 for the first time, surprising short sellers.
📌 In 2021, net income grew 667% YoY, further fueling stock momentum.
Tesla’s Vehicle Production and Deliveries (2019-2021)
A major bear argument was that Tesla couldn’t scale production. However, Tesla proved them wrong.
Key Takeaways:
🚗 Tesla almost doubled vehicle production from 2019 to 2021.
🚗 The company beat delivery expectations in 2021, proving its ability to scale.
🚗 This forced short sellers to exit, fueling the squeeze.
Tesla’s Market Valuation: How High Did It Go?
Key Takeaways:
📈 Tesla’s market cap grew from $45B (2019) to $1.2T (Nov 2021)—a 2,600% increase in less than 3 years!
📈 Tesla became the most valuable car company in history, surpassing Toyota, Ford, and GM combined.
📈 Short interest collapsed from 25% (2019) to 3% (2021), signaling massive short covering.
How Short Sellers Lost Over $40 Billion
Tesla was the most shorted stock in 2019-2020. When the stock surged, short sellers were forced to buy back shares at higher prices, leading to a vicious squeeze.
Biggest Short Seller Losses:
💥 Jim Chanos (Kynikos Associates) – Tesla bear since 2015, lost hundreds of millions.
💥 David Einhorn (Greenlight Capital) – Criticized Tesla’s financials, lost millions.
💥 Michael Burry (The Big Short) – Placed a $500M Tesla short bet in 2021, but closed it before max losses.
Tesla’s Stock Performance Post-Squeeze (2021-2024)
After hitting $900 in January 2021, Tesla continued rising, briefly touching $1,200 in November 2021.
The stock saw volatility in 2022, falling below $200 due to macroeconomic factors.
However, Tesla remains one of the world’s most valuable companies, and long-term believers continue holding.
Conclusion: Lessons from the Tesla Short Squeeze
✅Short Selling is Risky – If a heavily shorted stock keeps rising, losses can be unlimited.
✅ Short Squeezes Can Be Deadly – Hedge funds underestimated the risk of Tesla’s squeeze, costing them $40B+.
✅ Retail Traders Can Drive a Stock Higher – Tesla’s rise was powered by small investors who believed in Musk’s vision.
✅Retail Traders Can Challenge Wall Street – Similar to GameStop, Tesla’s squeeze showed that retail investors can push back against hedge funds.
✅Fundamentals Matter – Tesla’s actual business growth (profitability, expansion, and deliveries) ultimately fueled the stock’s rise.
✅Elon Musk’s Influence – Love him or hate him, Musk’s leadership and social media presence drove Tesla’s stock movement.
✅ Never Bet Against Innovation – Tesla proved that betting against a fast-growing, disruptive company can be costly.
Final Thought: If You Had Invested $1,000 in Tesla in 2010…
In 2010, Tesla’s IPO price was $17 per share.
If you had invested $1,000 in 2010, it would be worth over $200,000 today (2024).
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