Tesla's Post-Musk-Trump Feud: Short Selling Surge and Regulatory Crossroads

The bitter public feud between Elon Musk and Donald Trump in June 2025 has upended Tesla's trajectory, transforming the company into a prime target for short sellers and institutional investors. A 14% stock plunge on June 5, 2025—triggered by escalating political tensions—catalyzed a $4 billion windfall for bears, marking the second-largest single-day short-profit surge in Tesla's history. This article examines how the clash between Musk and Trump has exposed vulnerabilities in Tesla's valuation, amplified institutional bearish sentiment, and raised existential regulatory risks, suggesting a prolonged period of downward pressure on the stock.

The Catalyst: Political Fallout and Immediate Market Impact

The feud's crescendo began on June 5, 2025, after Musk publicly lambasted Trump's “One Big Beautiful Bill” as a “disgusting abomination” for its proposed elimination of $7,500 electric vehicle (EV) tax credits and its $2.4 trillion debt addition. Trump retaliated by threatening to cancel government contracts with Tesla and SpaceX, which had secured $38 billion in federal support over two decades. The stock cratered, erasing $152 billion in market value and pushing Tesla's valuation to $916 billion—a 29.3% decline year-to-date and its lowest ranking in the top 10 global companies since 2020.

Short Selling Surge: Bears Reap $4B in a Single Day

The June 5 crash solidified Tesla as the most shorted stock in the U.S. by total value, with short sellers pocketing $4 billion in profits—a record second only to the $5.4 billion windfall in September 2020 when Tesla was excluded from the S&P 500. By mid-2025, cumulative short profits surpassed $7.5 billion, eclipsing Apple's $7.3 billion to become the top short target among the “Magnificent 7” megacaps.

The catalysts were twofold: Musk's brazen political stance and Trump's retaliatory threats. Musk's criticism of the tax bill—which JPMorgan analysts estimate could reduce Tesla's annual profits by $1.2 billion—sparked fears of eroded margins. Simultaneously, Trump's vow to revoke government contracts (including SpaceX's Starlink deals worth $6.3 billion in 2024 alone) introduced acute financial risks.

Institutional Sentiment: Record Put Options Signal Bearish Conviction

Institutional investors amplified the bearish tone through record volumes of put options, which allow buyers to sell shares at a set price. Tesla's put option volume surged to multiyear highs in June, with traders betting on further declines. This activity reflects a shift in sentiment: Tesla's once-celebrated growth narrative is now overshadowed by political instability and regulatory threats.

Analysts note that the stock's 140x price-to-projected-earnings ratio—a metric once justified by Tesla's disruption of the auto industry—now appears unsustainable. With EV demand slowing and BYD overtaking Tesla in key European markets, the company's reliance on U.S. subsidies and Musk's volatile political calculus has investors fleeing.

Regulatory Risks: The Elephant in the Room

Beyond short-term volatility, the feud has exposed Tesla to existential regulatory risks. The “One Big Beautiful Bill” proposes not only to eliminate EV tax credits but also to impose a $250 annual EV driver fee and block California's EV sales mandates—measures analysts estimate could cost Tesla $3.2 billion in annual revenue.

Moreover, Trump's threats to block Tesla's autonomous “robotaxi” plans—a cornerstone of its long-term vision—raise questions about its ability to execute on high-margin services. The company's ties to Musk's controversial political activities, including accusations of far-right affiliations, further jeopardize its reputation and access to markets.

Investment Implications: Shorting or Hedging?

The confluence of political tension, institutional skepticism, and regulatory headwinds suggests Tesla's valuation faces sustained downward pressure. Investors should consider:
1. Shorting Tesla: The stock's technical breakdown, coupled with deteriorating fundamentals, offers a high-reward opportunity for bears.
2. Hedging via Puts: Institutions exposed to Tesla's stock or EV ETFs can mitigate risk using put options, given elevated volatility.
3. Avoiding Overvaluation Traps: Tesla's P/E ratio now lacks support from growth catalysts, making it vulnerable to further multiple contraction.

Conclusion: A New Era of Uncertainty

The Musk-Trump feud is more than a personality clash—it's a reckoning for Tesla's future. With short sellers emboldened, institutional sentiment souring, and regulatory clouds darkening, the stock's path to recovery is fraught. While Tesla remains a leader in EVs, its reliance on political favor and Musk's polarizing persona now outweigh its innovation. For investors, the writing is on the wall: Tesla's golden age may be over.

In this new reality, prudence demands caution. The bulls' era is ending—unless Musk and Tesla can navigate a political truce and regulatory clarity. Until then, the bears hold the upper hand.