Tesla 2020: the largest short squeeze in modern stock market history
How the world's most shorted stock rose 740% in a year burning tens of billions from short sellers
In 2020, Tesla rose 740% becoming the world's 5th-largest company. Short sellers — who had bet against the stock — lost over $38 billion. The Tesla case redefined the risk of short selling.
Wall Street's most hated stock
For years, Tesla had been the most shorted stock in the US market. Short sellers had solid arguments: production was behind, margins were negative, Musk was unpredictable. But they had a problem: they were shorting a company with an almost religious following.
2020: everything changes
At the beginning of 2020, Tesla was worth about $85 (split-adjusted). At the end of the year, it was worth $705 — a 740% rise. It became the 5th-largest company by market cap in the world, surpassing Facebook.
The reasons for the rally
Inclusion in the S&P 500 in December 2020 forced index funds to buy massively. Before inclusion, short sellers suffered huge losses as the stock rose and they had to cover. The feedback loop amplified the move.
Short sellers' losses
In 2020, Tesla short sellers collectively lost over $38 billion. It was the largest loss for bears on a single stock in market history.
Lessons
- Short selling stocks with high interest has unlimited risks: the price can rise indefinitely.
- Sentiment and narratives can dominate fundamentals for years: Tesla wasn't "expensive" because investors didn't understand fundamentals — it was expensive because they were betting on the future.
- Index inclusion creates predictable structural demand: it's one of the few "certainties" in markets.