GameStop rocketed to notoriety this year after commentators on the Reddit forum r/wallstreetbets helped send the struggling video game store’s stock up almost tenfold in one week. The Reddit crowd was trying to combat enormous interest in GameStop by short sellers, who borrow stocks and sell them in the hopes of repurchasing them at a lower price later and turning a profit.
If a stock’s price goes up, investors who shorted it are on the hook for potentially limitless losses, and GameStop’s irrational rally forced those betting against its stock to cover their losses. At least one hedge fund, Melvin Capital, lost 53% of its fund in January alone, necessitating a $2.8 billion emergency cash rescue, while several others lost between 10% and 30%. Since then, GameStop has become shorthand for short investors getting “squeezed” as they scramble to cover their losses.
But before GameStop, there was Tesla. The electric carmaker has been short investors’ biggest targets—and most painful bet—since at least 2010, according to S3 Partners, a financial technology and analytics firm. Between 2017 and 2021, investors shorting Tesla lost $52 billion; when going back to 2010, the number is closer to $57 billion. GameStop short sellers, by contrast, lost an estimated $8.4 billion, according to data from US exchanges analyzed by S3.
That makes Tesla the worst-performing domestic short trade for the last decade or more, according to Ihor Dusaniwsky, S3 Partners’ managing director. Tesla’s stock price has risen 15-fold since 2017.
But all that has barely dampened investors’ appetite for wagering against Tesla. The electric carmaker remains one of the most shorted companies in the world with $40 billion in open short positions (the value of shares sold short with positions not yet closed or covered), representing 6% of the total shares available for trading (down from 20% in 2020). That’s three times more than short positions against Apple, its nearest contender.
There’s a saying in Silicon Valley popularized by fellow billionaire Peter Thiel: “Never bet against Elon Musk,” Tesla’s chief executive. But for Wall Street, there’s always money to be made (and lost) betting against Tesla’s success.