Markets

Tesla shorts lost more than $5 billion in two days while Elon Musk's net worth climbs $8 billion

Key Points
  • Musk owns about 19% of Tesla's stock, or 34.1 million shares.
  • With the stock surging in two consecutive days of trading, Musk's net worth grew $8.1 billion.
  • But short sellers are getting crushed, with racking up $5.7 billion in mark-to-market losses over the same time, according to S3 Partners.
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Tesla shares rocket higher—Here's what Wall Street thinks of stock's wild ride

The very investors who bet against Tesla are helping make CEO Elon Musk very rich.

Musk owns about 19% of Tesla's stock, or 34.1 million shares. With the stock surging in two consecutive days of trading, Musk's net worth grew $4.41 billion on Monday and $3.65 billion on Tuesday – $8.1 billion in total.

Short sellers capitulating are part of the fuel for Tesla's rally. These are investors who bet against the stock by borrowing shares from an investment bank and then selling them. Short sellers hope the stock will go down, so they can buy the shares back at lower prices and return them to the investment bank, turning a profit on the difference.

But, with Tesla's stock up more than 36% in the past two days, short sellers are getting crushed. Shorts racked up mark-to-market losses of $3.1 billion on Monday and $2.58 billion on Tuesday, according to data from S3 Partners.

That's $5.7 billion in losses in two days.

VIDEO13:4113:41
Morgan Stanley's Adam Jonas on Tesla's soaring stock

With Tesla's stock more than doubling since the beginning of the year, the firm says shorts have logged $11.5 billion in mark-to-market losses. And, when a stock price trends higher, short sellers are forced to buy back the equity at a higher price in order to cut their mounting losses. If enough short sellers buy in tandem, it can create higher demand and itself drive the equity price even higher, AKA a short squeeze.

Tesla closed up nearly 14% on Monday at a record high $887.06 a share.

Musk has previously made his disdain for short sellers well known, saying that he thinks the practice of betting against a stock should be illegal. He's taken aim at everyone from firms like BlackRock to hedgefund mogul David Einhorn. He's even mocked the Securities and Exchange Commission on Twitter, calling it the "Shortseller Enrichment Commission" – only days after he settled fraud charges the SEC brought against him.

Two years ago, Tesla CEO Elon Musk promised the "short burn of the century" was coming soon, saying in a tweet that "flamethrowers should arrive just in time." Musk on Monday tweeted three flame emojis.