Key Takeaways
- • GMT Capital's three Bay Resource long-short equity funds (combined ~$3.3 billion in assets) dropped approximately 10% in January 2020, driven primarily by a short position in Tesla that represents 4.4% of the portfolio.
- • Tesla stock surged 55% in January 2020 and gained 83% year-to-date through mid-February, creating significant mark-to-market losses for short sellers across the industry.
- • Hedge fund manager Tom Claugus acknowledged Tesla "has done a good job getting to sustainability" but contends the company's valuation is "detached from reality," despite maintaining a multi-year short position.
- • Industry-wide, short sellers on Tesla accumulated approximately $2.9 billion in mark-to-market losses by end of 2019, with additional losses mounting through early 2020 as the rally accelerated.
- • Prominent investors including David Einhorn's Greenlight Capital have suffered significant underperformance due to Tesla short exposure, underscoring the sustained pain across the hedge fund industry from betting against the electric automaker.
Summary
Tesla's extraordinary stock rally has inflicted fresh losses on the hedge fund community, with GMT Capital's flagship long-short equity funds experiencing approximately 10% declines in January 2020 as their multi-year short position in the automaker backfired spectacularly. The three Bay Resource funds, collectively managing roughly $3.3 billion, were impacted as Tesla's stock jumped 55% during the same month and gained 83% year-to-date through mid-February.
Tom Claugus, who manages GMT Capital, disclosed to Bloomberg that Tesla represents 4.4% of the fund's portfolio through its short position, which the firm has maintained for years. Despite acknowledging the company's operational improvements, Claugus argues Tesla's valuation has become unmoored from fundamental reality. However, his conviction has proven costly, as Tesla's relentless ascent—fueled in part by the company's surprise return to profitability announced in October 2019—has created mounting losses for bearish investors across the institutional landscape.
The damage extends well beyond GMT Capital. Data from S3 Partners indicated that traders who had shorted Tesla accumulated approximately $2.9 billion in mark-to-market losses by the end of 2019, with losses continuing to accumulate through early 2020. David Einhorn's Greenlight Capital underperformed the broader market in 2019, returning 14% largely due to its Tesla short position. The pattern illustrates a persistent challenge for short sellers: Tesla's 250% rally from October 2019 onward has made betting against Elon Musk's company an increasingly expensive proposition for institutional investors, despite fundamental concerns about valuation multiples.
Tom Claugus, who manages GMT Capital, disclosed to Bloomberg that Tesla represents 4.4% of the fund's portfolio through its short position, which the firm has maintained for years. Despite acknowledging the company's operational improvements, Claugus argues Tesla's valuation has become unmoored from fundamental reality. However, his conviction has proven costly, as Tesla's relentless ascent—fueled in part by the company's surprise return to profitability announced in October 2019—has created mounting losses for bearish investors across the institutional landscape.
The damage extends well beyond GMT Capital. Data from S3 Partners indicated that traders who had shorted Tesla accumulated approximately $2.9 billion in mark-to-market losses by the end of 2019, with losses continuing to accumulate through early 2020. David Einhorn's Greenlight Capital underperformed the broader market in 2019, returning 14% largely due to its Tesla short position. The pattern illustrates a persistent challenge for short sellers: Tesla's 250% rally from October 2019 onward has made betting against Elon Musk's company an increasingly expensive proposition for institutional investors, despite fundamental concerns about valuation multiples.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.