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Hedge funds piled into short bets against Tesla Inc. right before the electric vehicle maker unveiled a set of numbers that triggered a hefty share-price rally.<\/p>\n
About 18% of the 500-plus hedge funds tracked by data provider\u00a0Hazeltree<\/a>\u00a0had an overall short position on Tesla at the end of June, the highest percentage in more than a year, according to figures shared with Bloomberg. That compares with just under 15% at the end of March.<\/p>\n Those contrarian bets now threaten to saddle the hedge funds behind them with losses. Tesla\u2019s latest\u00a0vehicle-sales results<\/a>, published on July 2, revealed second-quarter deliveries figures that beat average analyst estimates, even though sales were down. Investors pounced on the news, driving the company\u2019s shares to a six-month high. Since the beginning of June, Tesla\u2019s share price has now soared about 40%.\u00a0<\/p>\n Tesla is likely to see its profit margins improve, helped by lower production and raw material costs, according to Morningstar Inc.\u2019s Seth Goldstein, one of the top three analysts covering the stock in a Bloomberg ranking that tracks price recommendations.<\/p>\n The company will likely \u201creturn to profit growth\u201d next year, he said in a note to clients. But how Tesla handles the market\u2019s intensifying focus on affordable EVs will be key, he added.<\/p>\n The development feeds into an ongoing sense of uncertainty around how to treat the wider EV market, amid a sea of conflicting dynamics. The industry \u2014 a key plank in the global race to reach net zero emissions by 2050 \u2014 benefits from generous tax credits. Yet it\u2019s also contending with significant hurdles in the form of tariff wars and even identity politics, with some consumers rejecting EVs as a form of \u201cwoke<\/a>\u201d transport.\u00a0<\/p>\n In the US, Donald Trump has said that if he becomes president again after November\u2019s election, he\u2019ll undo existing laws supporting battery-powered vehicles, calling them \u201ccrazy<\/a>.\u201d That said, Trump is a \u201chuge fan<\/a>\u201d of Tesla\u2019s Cybertruck, according to Elon Musk, the EV giant\u2019s chief executive officer.<\/p>\n Meanwhile, the list of internal disruptions at Tesla is long. In April, Musk told staff to\u00a0brace for major job cuts<\/a>, with sales roles among those affected. And the Cybertruck, Tesla\u2019s first new consumer model in years, has\u00a0been slow to ramp up<\/a>.<\/p>\n For that reason, some hedge fund managers have decided the stock is off bounds altogether. Tesla is \u201cvery difficult for us to position,\u201d said Fabio Pecce, chief investment officer at Ambienta where he oversees $700 million, including managing the Ambienta x Alpha hedge fund.\u00a0<\/p>\n Basically, it\u2019s not clear whether investors are dealing with \u201ca top company with a great management team\u201d or whether it\u2019s \u201ca challenged franchise with deficient corporate governance,\u201d he said.\u00a0<\/p>\n However, \u201cif Trump wins, it is truly going to be very positive\u201d for Tesla, though \u201cobviously not amazing for EVs and renewables in general,\u201d he said. That\u2019s because Trump is expected to impose \u201cmassive tariffs towards the Chinese players,\u201d which would be \u201cbeneficial\u201d to Tesla, Pecce said.<\/p>\n Investors ended 2023\u00a0declaring<\/a>\u00a0they\u2019d likely retreat further from green stocks in general, and EVs specifically, according to a Bloomberg Markets Live Pulse survey. Almost two-thirds of the 620 respondents said they planned to stay away from the EV sector, with close to 60% expecting the iShares Global Clean Energy exchange-traded fund to extend its slide in 2024. The ETF has lost 13% so far this year after sinking more than 20% in 2023.<\/p>\n The Bloomberg Electric Vehicles Price Return Index, whose members include BYD Co., Tesla and Rivian Automotive Inc., is down about 22% so far in 2024. At the same time, the metals and minerals needed to produce batteries are at the mercy of wildly volatile commodities markets, with speculators regularly trying to make a quick buck on shifts in supply and demand. Price volatility means some battery manufacturers are having to adjust to a market in which their profit margins have been getting badly squeezed.<\/p>\n Against that backdrop, more traditional automakers are finding themselves under pressure from shareholders to slow down their capital expenditure on EVs, with recent examples\u00a0including<\/a>Porsche AG. Polestar Automotive Holding UK Plc, a high-end EV manufacturer, has lost almost 95% of its value since being spun out of Volvo Car AB two years ago. Fisker Inc., another luxury EV maker, saw its\u00a0value wiped<\/a>\u00a0out starting last year and has since filed for Chapter 11 bankruptcy protection.<\/p>\n Soren Aandahl, founder and CIO of Texas-based Blue Orca Capital, said \u201cvaluations in the EV space are so beat up\u201d that he\u2019s now avoiding shorting the sector. It\u2019s no longer an obvious contrarian bet, because those tend to do best if investors enter \u201cwhen things are a little bit higher,\u201d he said. But at this point, \u201ca lot of the air\u2019s already come out of the balloon.\u201d<\/p>\n But Eirik Hogner, deputy portfolio manager at $2.7 billion hedge fund Clean Energy Transition, suggests there may be more pain to come for the wider EV industry. There are still \u201cway too many\u201d startups that remain \u201csub-scale\u201d and with gross margins that are simply \u201ctoo low,\u201d he said. As a result, the supply-demand dynamic of the EV market \u201cis still very negative.\u201d\u00a0<\/p>\n \u201cUltimately, I think you need to see more bankruptcies\u201d before the market starts to look healthier, Hogner said.\u00a0<\/p>\n<\/div>\n