Leveraged Tesla ETF Pulls in the Bulls Despite Big Drop

As Elon Musk's political activities and Tesla Inc.'s (TSLA) sales slump drive the electric-vehicle maker's stock down nearly 30% year to date, a surprising trend has emerged: Investors are aggressively buying the dip through a leveraged Tesla ETF.

Despite a punishing 54% year-to-date loss for the Direxion Daily TSLA Bull 2X Shares (TSLL), the leveraged Tesla bull fund continues to attract billions in new funds, revealing traders likely believe that the company's current challenges are temporary rather than structural.

The exchange-traded fund has lost nearly half its value in just the past month, reflecting Tesla's 28.7% stock decline in the same period. Yet, investors can't seem to stop pouring money into it.

TSLL, which aims to deliver twice the daily performance of Tesla stock, has attracted $1.3 billion in inflows over the past month and $2 billion year to date, even as the ETF has suffered a crushing 47.1% monthly loss and nearly 54% decline year to date, according to etf.com data.

"We tend to see inflows with our 2x daily TSLA Bull (TSLL) when we get pullbacks in the stock like we are experiencing currently with Tesla," according to Ed Egilinsky, managing director at Direxion. "Our Leveraged and Inverse ETFs are designed for short term/active trading, and some traders believe that TSLA will reverse higher."

The continued inflows come as Tesla faces multiple headwinds. The company is dealing with slowing sales globally, with European deliveries falling 50% year over year in January, Politico reported. In Germany, Tesla's sales crashed by 60% while overall EV sales surged by more than 50%.

Short-Term Traders Seek Opportunity Amid Volatility

"Since TSLL had inflows and TSDD had outflows last week, the data indicate that some traders are trying to buy the dip," according to Aniket Ullal, senior vice president and head of ETF research and analytics at CFRA. "They may believe TSLA is oversold."

While TSLL attracts billions, the GraniteShares 2x Short TSLA Daily ETF (TSDD), which bets against Tesla's stock, has seen $13.1 million in outflows over the past month despite posting strong gains of 69.2% in that period and 74.2% year to date.

"Investors are betting on a TSLL rebound after a sharp 30% decline in Tesla stock," said Noah Damsky, principal at Marina Wealth Advisors. "Investors have been conditioned to bet on a bounce back in stock prices, especially mega-cap tech stocks, given how well the market has performed over the last 10+ years."

The company faces increasing competition from electric vehicle makers in China and Europe, while CEO Elon Musk's political activity has alienated some customers and investors.

"There is currently a lot of volatility and downside pressure on Tesla stock with consumer spending weakening, uncertainty with tariffs, increasing competition with EV makers and a slowdown in their deliveries," Egilinsky explained. "The polarizing figure of Musk himself and mixed investor sentiment surrounding his involvement with the current administration could also be impacting the stock."

Despite these challenges, several market watchers see potential for recovery. CFRA's analysts believe Tesla's stock decline primarily reflects already-known sales challenges, Ullal said, and the company has less tariff exposure than competitors. They also anticipate that upcoming U.S. autonomous driving regulations could provide a positive catalyst for the stock.

The long-term outlook for Tesla extends beyond its current vehicle lineup. Damsky pointed to multiple future growth drivers, including "battery storage, solar and robo-taxis/autonomous driving," noting that these ambitious projects keep many investors focused on future potential rather than present valuation concerns.