Investors betting against Tesla lost about $1.3 billion after a tweet from CEO Elon Musk's verified account which mentioned taking the company private, according to estimates from financial technology and analytics firm S3 Partners.
Tesla shares rose 11 percent Tuesday, meaning short sellers lost about $1.3 billion in mark-to-market losses, according to estimates from Ihor Dusaniwsky, S3's head of predictive analytics.
Dusaniwsky said the cumulative mark-to-market paper loss for Tesla short sellers is about $3 billion this year and 35 million shares are held short.
Tesla shares jumped after a tweet from Musk's verified Twitter account that mentioned taking the company private at a $420 per share price.
One of the more notable short sellers in Tesla's stock, Jim Chanos of Kynikos Associates, commented on Musk's tweet to CNBC.
"The short position is the best thing the stock has going for it. 'Musk vs The Shorts' is a far better narrative than 'Tesla vs Mercedes/Audi/Porsche,'" Chanos said.
Musk's tweet came after an earlier report from the Financial Times that said Saudi Arabia's sovereign wealth fund bought a 3 to 5 percent stake in the electric car maker, according to people with direct knowledge of the matter. That report had already lifted Tesla's stock about 30 minutes earlier.
Tesla stock was halted at $367.25 per share shortly after 2 p.m., before closing up 11 percent after resuming trade at 3:45 p.m.
Musk later explained in an email to company employees why he is considering taking Tesla private, but also said "a final decision has not yet been made." The email was published on Tesla's corporate blog.
--With reporting by Scott Wapner