Tesla Leverage ETF Plunge: Korean Investors Face Betrayal

A Deep Dive into the 80% Drop and Its Impact

The recent crash in Tesla's stock price has left Korean investors reeling, as leveraged exchange-traded funds (ETFs) tied to the electric vehicle giant have plummeted, wiping out significant wealth. Bloomberg reports that Korean investors, who dominate ownership of these high-risk financial products, are grappling with losses as steep as 80% from their peak in December 2024. This dramatic decline highlights the dangers of leveraged Tesla ETFs, especially the London-listed Tesla 3x leverage ETF and the New York-listed Tesla 2x leverage ETF, which have become darlings of Korean retail investors chasing outsized returns. With Tesla stock dropping 41% from its December 17, 2024, high of $479.86 to $290.80 by February 26, 2025, the amplified losses in these leveraged products have turned dreams of profit into a financial nightmare.

Korean investors hold a staggering 90%+ of the London-listed Tesla 3x leverage ETF, amounting to approximately $245 million (around 3,580 billion KRW) as of February 21, 2025, according to data from Mirae Asset Securities, NH Investment & Securities, and Samsung Securities. This ETF, known by its ticker 3TSL, has seen its value crater by over 80% from its December peak, a fall compounded by the nature of leveraged ETFs, which multiply daily returns and losses. Similarly, the New York-listed Tesla 2x leverage ETF has shed about 70% of its value over the same period, with Korean investors owning $1.5 billion worth, or 43% of its total assets. These figures underscore the intense exposure Korean retail investors have to Tesla leveraged ETFs, making them particularly vulnerable to the stock's downturn. The allure of these products lies in their promise of magnified gains; for instance, a 1% daily rise in Tesla stock could yield a 3% gain in the 3x ETF. However, the flip side is a brutal magnification of losses, exacerbated over time by compounding effects, a risk many investors may not fully grasp.

What fueled this fervor among Korean investors for Tesla leveraged ETFs? Tesla has long been a favorite stock in South Korea, driven by its status as a leader in the electric vehicle market and the global fame of CEO Elon Musk. Korea’s robust EV ecosystem, with companies like LG Chem powering Tesla’s batteries, fosters a natural affinity for the stock. Additionally, years of low interest rates in South Korea have pushed retail investors toward riskier assets like overseas stocks and leveraged ETFs, seeking higher returns unavailable domestically. The Tesla 3x leverage ETF and its 2x counterpart became vehicles for this ambition, offering a high-stakes bet on Tesla’s meteoric rise during the post-U.S. election bull market in late 2024. Yet, the tide turned swiftly as uncertainties over President Donald Trump’s tariff policies and the growing threat from Chinese EV competitors like BYD weighed heavily on Tesla and other U.S. tech giants, dragging their stock prices down and amplifying losses in leveraged products.

The mechanics of leveraged ETFs explain the severity of this plunge. Designed for short-term trading, these funds reset daily, meaning their performance tracks Tesla’s daily percentage moves multiplied by two or three, not its overall trajectory. Over weeks or months, this daily compounding can erode value far beyond what a simple multiple might suggest, especially in a volatile or declining market. For example, Tesla’s 41% drop from mid-December to late February should theoretically result in a 123% decline for a 3x ETF if calculated linearly, but compounding pushes the real loss closer to 80% or more, depending on daily fluctuations. This mismatch catches many investors off guard, particularly those holding these ETFs long-term rather than trading them daily as intended. Korean investors, swept up in Tesla mania, likely saw these leveraged Tesla ETFs as a golden ticket, only to face a harsh lesson in their downside risk.

The fallout has sparked action from Korean financial institutions. Mirae Asset Securities recently announced it would halt orders for certain high-risk leveraged exchange-traded products (ETPs), including some tied to overseas markets, signaling heightened caution. This move reflects growing concern over the suitability of such volatile instruments for retail investors. Kim Bora, Asia-Pacific strategy head at Leverage Shares, the firm behind some of these ETFs, noted that Tesla’s longstanding popularity in Korea naturally spilled over into products like the Tesla 3x leverage ETF. She highlighted how their extreme volatility has historically been a draw, appealing to risk-tolerant investors chasing big wins. Now, that same volatility has become a double-edged sword, slashing portfolios and prompting soul-searching among those burned by the drop.

Beyond the numbers, this saga reveals broader lessons for investors worldwide. Leveraged ETFs tied to stocks like Tesla amplify both opportunity and peril, thriving in bullish runs but crumbling fast when sentiment sours. The current downturn, driven by macroeconomic headwinds and competitive pressures, serves as a stark reminder of their fragility. For Korean investors, who poured billions into these Tesla leveraged ETFs, the focus now shifts to recovery prospects. Will Tesla rebound enough to salvage some value, or will further declines deepen the wound? As regulators and brokerages tighten oversight, the appetite for such high-octane investments may cool, but the scars of this 80% plunge will linger, reshaping how Korean retail investors approach leveraged Tesla ETFs and similar risky bets in the future.