Tesla (TSLA.US) “Retail Legion” Ignored the Musk-Trump Dispute and Backfired $650 Million in Leverage

The Zhitong Finance App learned that last week, when Elon Musk's wealth shrunk by 36 billion US dollars and Tesla (TSLA.US) stock price was bloodwashed, his most fanatical supporters were using leverage to cut the bottom.

According to compiled data, investors injected $651 million into the TSLA ETF-Direxion (TSLL.US) by 2 times, the largest weekly capital inflow since the fund went public in 2022. Most of this capital entered the market on Thursday and Friday.

This rush to buy TSLL (the fund aims to provide double Tesla's daily return) reflects a familiar investment logic: doubling down on Musk in the midst of sell-offs — a strategy that has worked miracles in the past. But the difference is that as the tech leader openly confronts President Trump over an iconic tax reform bill, the deal is facing unprecedented risks, and the aftermath of the incident revealed a major rift in Musk's political capital.

In addition to personal grievances, Tesla is also facing the double pressure of increased competition in the Chinese market and cooling demand in developed markets. Compared to the high valuation multiples maintained by traditional car companies all year round, the rationality of this electric car manufacturer's valuation also continues to be questioned.

But none of this has shaken retail investors' firm belief — or speculative enthusiasm — that they have repeatedly profiteed by betting on Musk's comeback victory.

Matt Maley, chief market strategist at Miller Tabak + Co., said, “Retail investors have always been good at bottoming out when Musk is frustrated, and once again they see the recent sharp decline as a good buying opportunity. But given the plight Tesla is facing, it seems like it's too early to cut the bottom this time.”

The friendship previously formed by Musk backing Trump and funding his 2024 campaign broke down last week due to differences between the two sides over Trump's “One Big Beautiful Bill” (One Big Beautiful Bill) tax reform bill. Musk's critical remarks triggered Trump to publicly express “great disappointment with Elon,” causing the conflict to fully erupt on Thursday.

The conflict continued throughout the day: Trump raged that the billionaire CEO was “crazy” and threatened to cancel the government contract; Musk complained that Trump could not win the election without himself. Affected by this, Tesla's stock price plummeted, and Musk's net worth of 34 billion US dollars evaporated on Thursday alone, with a cumulative drop of 15% throughout the week to around 295 US dollars at the close of Friday.

However, historical data shows that bottoming out when Tesla's stock price is in free fall often pays off. The company's stock price rebounded after falling to $60 during the pandemic; although Tesla plummeted 65% in the first year of TSLL's listing (2022), it still recorded an inflow of 300 million US dollars in capital, and the stock soared 102% the following year.

Judging from TSLL's funding flow, Tesla bulls are clearly not deterred by the Musk-Trump turmoil. The ETF has attracted more than 3.5 billion US dollars in capital inflows so far this year, even though Tesla's stock price fell by more than 26% during the year. This figure is more than three times the amount of inflows for the full year of 2024 — and Tesla's stock price rose by more than 60% that year.