After months of chasing Tesla, Inc’s (NASDAQ:TSLA) AI-driven rally, investors betting against the electric vehicle maker are finally having their moment.
Bearish Tesla-focused ETFs have staged a remarkable comeback in July, with the Tradr 2X Short TSLA Daily ETF (NASDAQ:TSLQ) soaring more than 75% this month and the Direxion Daily TSLA Bear 1X ETF (NASDAQ:TSLS) climbing about 35%, as Tesla’s sharp stock decline breathes life into inverse strategies.
The rally comes as Tesla shares have tumbled around 18% in the days following a mixed Q2 earnings report that raised fresh concerns about profitability, despite stronger-than-expected vehicle deliveries.
Second-quarter deliveries of 480,126 vehicles beat analyst expectations, but the strong sales were overshadowed by an earnings miss, with adjusted EPS of 33 cents, negative free cash flow, and plans to spend more than $25 billion on AI, Robotaxi, Optimus and manufacturing expansion.
The results shifted investor focus away from delivery growth toward weakening margins and concerns that Tesla’s hefty investments in next-generation technologies could weigh on profitability before delivering meaningful returns.
Inverse Tesla ETFs are currently hovering near the top of the performance charts after spending much of the year under pressure from the stock’s relentless advance.
TSLQ benefits from Tesla’s steep slide
TSLQ has emerged as one of the biggest beneficiaries of Tesla’s selloff. The fund seeks to deliver -200% of the daily performance of Tesla stock, meaning consecutive declines in the automaker’s shares can translate into outsized gains for investors. As Tesla has extended its losses through July, the daily-reset leveraged strategy has amplified returns, driving the ETF’s gain to more than 75% for the month.
Like all leveraged single-stock ETFs, TSLQ is designed for short-term tactical trading rather than long-term investing, as the effects of daily compounding can cause performance to diverge from the inverse of Tesla’s returns over longer holding periods.
TSLS Offers a Different Bearish Approach
While TSLQ delivers leveraged inverse exposure, TSLS follows a less aggressive strategy. The fund provides approximately 1x inverse daily exposure to Tesla shares, allowing investors to benefit from declines in the stock without the additional leverage embedded in TSLQ.
That more measured approach has still produced a strong July performance, with the ETF gaining roughly 38% as Tesla shares retreated. The divergence in returns between the two funds highlights how leverage can significantly magnify both gains and losses during periods of heightened volatility.
The resurgence in bearish Tesla ETFs also underscores how quickly sentiment can reverse around one of the market’s most closely watched stocks. After leading much of the AI-fueled rally earlier this year, Tesla has become a focal point for investors questioning whether ambitious investments in autonomous driving, robotics and AI infrastructure can justify the company’s premium valuation before they begin translating into stronger earnings.
If Tesla’s recent weakness persists, inverse ETFs like TSLQ and TSLS could remain in focus. But should the stock regain its footing, the same leverage that fueled July’s gains could work just as quickly in the opposite direction, making these funds among the most volatile ways to express a view on the EV giant.
Photo: Shutterstock
Login to comment