Tesla's "retail army" ignores the Musk-Trump dispute and swings back to leverage buy at $650 million
Tesla's stock price has suffered a sharp decline, with Elon Musk's wealth shrinking by $36 billion. However, retail investors have aggressively bottom-fished the TSLA ETF with $651 million in leverage, marking the largest single-week inflow for the fund since its launch in 2022. Despite facing risks such as a public dispute with Trump and intensified market competition, retail investors remain confident in Musk's investment logic. Market strategist Matt Maley pointed out that retail investors often choose to bottom-fish when Musk is facing setbacks, but this time the bottom-fishing may be premature
According to the Zhitong Finance APP, last week, when Elon Musk's wealth shrank by $36 billion and Tesla's (TSLA.US) stock price faced a severe drop, his most fervent supporters were aggressively bottom-fishing using leverage.
Compilation data shows that investors injected $651 million into the 2x long TSLA ETF - Direxion (TSLL.US), marking the largest single-week inflow since the fund's launch in 2022, with most of the funds entering on Thursday and Friday.
This buying frenzy for TSLL (which aims to provide double daily returns on Tesla) reflects a familiar investment logic: doubling down on Musk during a sell-off—a strategy that has worked wonders in the past. However, the difference this time is that, as this tech leader publicly clashes with President Trump over the iconic tax reform bill, this trade faces unprecedented risks, with the aftermath revealing significant cracks in Musk's political capital.
Aside from personal grievances, Tesla is also under dual pressure from intensified competition in the Chinese market and cooling demand in developed markets. Compared to the high valuation multiples maintained by traditional automakers over the years, the reasonableness of this electric vehicle manufacturer's valuation continues to be questioned.
Yet none of this has shaken the firm belief—or speculative enthusiasm—of retail investors, who have profited handsomely from betting on Musk's comebacks.
Matt Maley, Chief Market Strategist at Miller Tabak + Co., stated, "Retail investors have always excelled at bottom-fishing for profits when Musk is down; they see the recent plunge as a buying opportunity again. But considering the difficulties Tesla faces, this bottom-fishing seems premature."
Previously, the friendship established due to Musk supporting Trump and funding his 2024 campaign broke down last week over differences regarding Trump's "One Big Beautiful Bill" tax reform proposal. Musk's critical remarks prompted Trump to publicly express his "disappointment with Elon," leading to a full-blown conflict on Thursday.
The conflict continued throughout the day: Trump lashed out at the billionaire CEO, calling him "crazy," and threatened to cancel government contracts; Musk retorted that Trump wouldn't win the election without him. As a result, Tesla's stock price plummeted, evaporating $34 billion of Musk's net worth in just one day, with a cumulative drop of 15% for the week, closing around $295 on Friday.
However, historical data shows that bottom-fishing during Tesla's stock price free fall often yields returns. During the pandemic, the company's stock price rebounded after falling to $60; despite Tesla's 65% drop in the first year of TSLL's launch (2022), it still recorded $300 million in inflows, and the stock surged 102% the following year.
Judging by the fund flows into TSLL, Tesla bulls are clearly not deterred by the Musk-Trump turmoil. So far this year, the ETF has attracted over $3.5 billion in inflows, despite Tesla's stock price dropping more than 26% this year. This figure is more than three times the total inflow for the entire year of 2024—when Tesla's stock price rose over 60%
