Investors betting against Tesla are headed for "short squeeze hell," according to research group S3 Partners. Those who bet against Tesla lost $1 billion on Thursday as the stock rallied after its second quarter earnings report. 

Production records at Tesla's Fremont and Shanghai factories in June led Musk to praise the company, saying it has "the potential for a record-breaking second half of the year."

Musk's optimism helped drive the stock gain, but it was also driven by short-seller covering, which happens when investors who have bet against a stock  snap up shares in the open market to close their losing positions. 

At the same time, Tesla remains the ninth most popular long position among hedge funds — which means they could help drive further momentum. 

"These buy-to-covers and the potential for hedge funds to bulk up their positions in a high beta name with a positive price trend may help reverse Tesla's year[-to-date] price weakness," S3 Partners said.