Elon Musk lashes out at short sellers during GameStop market war

Tesla boss says the practice is ‘legal only for vestigial reasons’

Graig Graziosi
Thursday 11 March 2021 17:55
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Tesla CEO Elon Musk voiced his disdain for short selling on Twitter, tossing his voice into the fray over the GameStop short squeeze fuelled by Reddit investors.

Mr Musk painted the idea of selling something you do not actually own as a "scam." In short selling, buyers borrow stocks and then sell them with the hope the stock price will fall. They then buy them back at a lower price before returning them to the lender, profiting from that difference in price.

"u can’t sell houses u don’t own, u can’t sell cars u don’t own, but u *can* sell stock u don’t own!? this is bs – shorting is a scam legal only for vestigial reasons," he wrote.

A comment Mr Musk made earlier in the short squeeze praising the movement appeared to help drive the GameStop rally.

Mr Musk has a personal stake in sticking it to short sellers; last year a number of major hedge funds bet against the company, arguing the electric vehicle manufacturer was massively overvalued. The short sellers hoped the stock's price would fall, allowing them to make a tidy profit on the difference.

The company's owner has never been one to take criticism lightly. In response to the short sellers, Mr Musk released Tesla "short shorts" - pairs of tiny red shorts with the Tesla logo printed in white - to mock the investors betting against him.

Ultimately Mr Musk came out on top. The short sellers lost more than $40bn on their bet against Tesla, while Mr Musk's personal wealth tripled, launching him beyond Amazon founder Jeff Bezos to the top of the list of world's wealthiest people.

Follow live: Backlash against Robinhood after Reddit-inspired traders restricted amid market turmoil

GameStop's rally has been driven primarily by a Reddit forum called WallStreetBets, where users banded together to rally the share price when they discovered the hedge funds' plans to try to drive the stock price down.

The video game retailer's stock price has dipped in recent years as more and more game consumers choose to purchase their products digitally, rather than buying physical discs from the store.

The GameStop short squeeze has attracted the attention of top US financial leaders as well as the US government.

White House Press Secretary Jen Psaki said the Biden administration was “monitoring the situation”.

House Speaker Nancy Pelosi said the Congress would take part in any scrutiny of the GameStop short squeeze, and called the developments "interesting."

On Thursday, Robinhood, a stock trading app that allows users to buy and sell shares without transaction fees and provides easy access to the market, stopped providing the option to purchase GameStop stocks as hedge fund owners cried foul.

Representative Alexandria Ocasio-Cortez called for an investigation into the decision by Robinhood and other stock retail services to halt GameStop trading.

Should GameStop maintain its hugely inflated stock price, the hedge funds betting against it will be forced to buy back the stock the Reddit investors bought to the tune of billions of dollars. 

This article was amended on March 11, 2021, to correct the description of short selling.