Traders betting against Tesla are finally making millions

Betting against Tesla this year has been an exercise in futility, as short sellers have repeatedly been burned by one of the market's hottest stocks.

Their patience is finally paying off.

Those investors have made $72 million over the past two weeks as Tesla's stock has plunged 11%, putting a dent in a massive year-to-date gain that totaled 80% at its 2017 peak, according to data compiled by financial analytics firm S3 Partners. Their mark-to-market profit is even bigger over the past month, totaling $160 million, the data show.

As a result, the amount of Tesla stock being held short has fallen by roughly $1.8 billion. The decline isn't surprising, considering many short sellers likely jumped at the chance to close positions and pocket some profits after a long, arduous streak of losses.

Interestingly, the paring of bets against Tesla has come at a time when short interest is climbing throughout the rest of the automotive sector - and costing bearish speculators money. That increase has mirrored gains in the industry, which stemmed from strong August auto sales and speculation around a government-backed shift toward electric cars, according to S3.

In fact, the price divergence in returns over the past month has made Tesla the sector's most profitable short over the period, as bets against other major auto manufacturers have lost $1.5 billion, S3 data show.

However, Tesla skeptics are still holding a whopping $9.6 billion of Tesla stock short, showing that while bearish sentiment is waning slightly, it's not going away.

"Tesla shorts have proven that they have an iron will and are standing by their short thesis," Ihor Dusaniwsky, managing director of predictive analytics at S3, wrote in a client note.

Another explanation is that investors are no longer shorting Tesla as a proxy for a hedge against declines in the broader stock market - a practice that was in full swing as of late July.

Now that US equities have proven that they can hit new record highs without mega-cap tech stocks leading the way, it's possible that the trading playbook is being changed on the fly, with Tesla no longer bearing as much of the brunt of investor uncertainty.

Get the latest Tesla stock price here.