It is a battle of the masses of retail investors against the big fish on Wall Street. Hedge fund billionaires who – according to the cliché – want to profit from price losses without having a serious interest in the companies and possibly jobs. Those who earn their money by the fact that many private investors (Wall Street parlance: “Silly money”) lose money. But the small investors get prominent support in the latest competition: With Elon Musk (49) has become the head of the US electric car manufacturer Tesla and the space company SpaceX on their side. A man who shouldn’t be averse to making money in general – after all, Musk is with a fortune currently around $ 181 billion according to “Forbes” the present richest person in the world.
But in the fight against Wall Street hedge funds, Musk is on the side of the “little man”. In the midst of the hype about Gamestop, Musk fueled the hustle and bustle with a single tweet (“Gamestonk”), whereupon the share price received an additional price boost and other shortsellers are likely to be in trouble. Since then, the Tesla boss has had the topic with further messages on his favorite medium Twitter additionally heated. The influence that Musk is currently exercising on Twitter is considerable: on Monday night, a short tweet from the Tesla boss was enough to accelerate the price rally for the cryptocurrency Bitcoin again.
But where does Musk’s commitment to small investors and against the speculators of the financial markets come from? In fact, the Tesla boss has been fighting his own feud with Wall Street short sellers for years. The current mass movement of private investors may seem like a suitable opportunity to wipe out his trusted opponent again.
For years, Tesla has been viewed critically by various hedge funds and other investment professionals. The long-term moderate business success of the company as well as the often too grandiose announcements by the boss Elon Musk caused skepticism, especially because the share price seems to be ahead of the actual corporate development for years. Consequence: Tesla has long been a popular destination for shortsellers who are betting on the Group’s share price falling.
However, the neverending story of Elon Musk and the shortsellers begins much earlier. One of the first hedge fund managers to fail with short bets against Tesla was Whitney Tilson. As early as 2014, he bet on a price decline for the electric car manufacturer, when the share was still at a more than modest level of around 50 dollars from today’s perspective. Tilson and his investment firm Kase Capital soon realized that they were completely wrong with their bet: The Tesla paper shot up by 40 percent and broke the hedge fund heavy losses. After further speculation Tilson even shut down his shop a few years later.
Short pants for David Einhorn
Background: short sellers operate according to a simple principle. They borrow stocks that they think will fall in price and resell those borrowed papers. The idea behind this is that you can later buy the shares at a cheaper rate and give them back to the lender. However, it becomes problematic if the price of the shares in question does not fall in the meantime, but possibly even rises. Then at some point the short sellers are forced to make emergency purchases, which can also drive the price upwards. The so-called “short squeeze” occurs, which is not infrequently accompanied by a real price explosion.
Probably the most prominent among Musk’s shortseller opponents is David Einhorn (52), head of the US hedge fund Greenlight Capital. For years, Einhorn enjoyed a reputation as feared and influential: if he set his sights on a share, the prediction of a price loss often turned out to be a self-fulfilling prophecy. He made a fortune just by betting against the lost US investment bank Lehman Brothers. But those times seem over.
Einhorn has also been betting against Tesla for years, but so far in vain. High losses became known as early as 2018, which Greenlight Capital imported with the electric car manufacturer’s misjudgment. And the argument between Einhorn and Musk even became personal. The background to this was a famous tweet from the Tesla boss in the same year in which he announced his company’s withdrawal from the stock market (“Am considering taking Tesla private at $ 420. Funding secured.”). The short message later turned out to be invalid, Musk received it Trouble with the SEC and even had to vacate his post at the top of the Tesla board of directors.
On the stock exchange, Musk understandably caused some turmoil with his alleged plan in 2018 – which in turn called professional investors like Einhorn on the scene. After all, the price at which Musk allegedly wanted to withdraw the Tesla shares from trading was above the market price at the time. Those who had bet on a decline in Tesla’s share price were threatened with losses.
Einhorn’s reaction: In a letter he sent to investors, he got tough on Musk personally, calling the Tesla boss “erratic and desperate”. In addition, the hedge fund manager criticized in the letter technical defects that he had with a Tesla Model S leased by him, combined with the fact that he was already looking forward to an ordered Jaguar I-Pace – a competitor model. Musk’s replica was not long in coming. “Tragic,” he tweeted. “Will send Unicorn a box of shorts to comfort him in these difficult times.” In fact, a little later, the hedge fund manager received a package of shorts, which, as it turned out, did not come from Musk himself, but from a clothing company that apparently sensed good PR and jumped on the bandwagon.
Andrew Left and the ghosts he called
And the anecdote does not end there: In 2020, Musk came back to the idea of shorts in his ongoing dispute with the shorts. On the Tesla website he started selling red shorts with the gold-colored Tesla logo and the words “S3XY” for the S, 3, X and Y models. As reported in the media, the website collapsed under the load of many inquiries – and the pants were sold out within a short time. In the meantime, however, they are apparently available again in China.
But there are good things to say about the relationship between Musk and the short sellers. Last year it became known that Citron Research, a well-known critic of Tesla, had switched sides. Citron boss Andrew Left (50) no longer bet on price losses, but from now on on a positive performance of the company – and for his part he criticized his colleagues who were selling short, such as David Einhorn or Mark Spiegel, head of the hedge fund Stanphyl Capital.
Irony of fate: The Musk-backed retail investor movement has now too Lefts Citron Capital already brought heavy losses.