In his biography of Tesla CEO Elon Musk, writer Walter Isaacson recounts a time when Musk and Microsoft co-founder Bill Gates were close to collaborating on philanthropic projects. However, the relationship soured when Musk discovered that Gates had shorted Tesla’s stock.
Tesla shares have been surging in the last few weeks. Amid this historic moment for the company, Musk recently responded to a comment on X, saying, “If Tesla does become the world’s most valuable company by far, that short position will bankrupt even Bill Gates.” This isn’t the first time Musk has mocked Gates publicly.
Background. Musk and Gates have a history of arguing. Things got even more heated when the Tesla CEO learned that Gates had a short position in Tesla shares, which led to the Microsoft founder losing $1.5 billion. When confronted by Musk, Gates admitted that he held those shares “at a loss” and acknowledged his mistake. However, he didn’t sell off his Tesla shares.
Musk expressed his disbelief at the time, saying, “How can someone say they are passionate about fighting climate change and then do something that reduced the overall investment in the company doing the most? It’s pure hypocrisy. Why make money on the failure of a sustainable energy car company?”
What is a short position? A short, or a short position, represents an investment strategy that bets against a company’s stock. Instead of hoping that the company’s shares will increase in value, this approach profits when the company’s stock loses value. This explains Musk’s frustration with Gates.
In a short-selling transaction, an investor “borrows” shares from a broker. The investor then sells those borrowed shares (which they don’t own) and commits to repurchase and return them within a specified timeframe. For example, if the investor sells a share for $10 and later the share’s value declines by 50%, they can buy it back for $5. When the investor returns the shares to their original owner, they keep the $5 difference as profit.
What happens when the shares surge again? If the company’s stock price increases, the investor faces a problem. In this case, they would need to buy back the shares at a higher price, resulting in a loss since they still have to return the shares to the owner at the end of the borrowing period.
Tesla shares have experienced a significant surge since late October. According to The Economic Times, Tesla shares skyrocketed by 56.91% following President-elect Donald Trump’s victory, greatly boosting the fortunes of Musk and other investors while causing substantial losses for those holding short positions.
This situation has fueled Musk’s commitment to “obliterate” those betting against Tesla’s stock. While it’s a stretch to claim that Gates could face bankruptcy after Tesla’s meteoric rise, a short position clearly carries significant risks.
Could Tesla bankrupt Gates? While it’s true that Gates’ fortune isn’t at its peak, suggesting that this decline could lead to his bankruptcy is a big assumption. Additionally, it’s worth noting that there’s no evidence that he currently holds an investment in Tesla.
According to calculations by the investment portal Gurufocus.com, if Tesla’s shares were to reach $2,622.28, surpassing Apple to become the most valuable technology company, Gates’ investment in Tesla could result in losses of approximately $23.56 billion. Although that is a substantial amount, Gates has assets totaling $106.9 billion.
Image | Daniel Oberhaus | Greg Rubenstein
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