Tesla Stock Rallies: The Perfect Storm

by Christopher Larson December 16, 2019

Tesla Stock Rallies: The Perfect Storm

I've been saying for weeks now that everything will be turning up Tesla for the next few months. Today proved that even with almost no singular salient news headline, investors are on the up and short sellers are trending down.

 As of today's market close, Tesla ($TSLA) stock traded at $381.50 per share, up 6.45% from yesterday's close; as compared to the S&P 500, which weighed in at $3191.45, up 0.71% from yesterday's close. 

 Today was not a terribly interesting day for Tesla news and developments. There were several good headlines pushing out from behind the hedges, but nothing stark enough to single-handedly justify a twenty-three dollar jump. News outlets that frequently cover Tesla credited different reasons for the rally. Teslaratiwrote on the heavy downtrend of short sellers as being the source of the rise. MarketWatchspoke to investors' optimism regarding the new Gigafactory 4 in Shanghai. Seeking Alpha attributed the gain to a prominent Tesla bear, Credit Suisse, changing its position on Tesla and raising their bull scenario stock price. 

 This all goes to say -- much is going on in the Teslasphere. 

 In regards to the downtrend of short interest, the numbers are interesting, the outlook is positive, but the short interest is not record-breaking; it is not even a 52-week low for short interest.

 Short Interest is on a clear downtrend, but the numbers are nowhere near record-breaking. It is nice to see, however, the decline being rather steep in recent months with the announcement and fulfillment of several ground-breaking and interesting projects. 

Concerning the theory that Gigafactory III optimism caused the stock jump, it is true that Gigafactory III is turning heads. The factory that went from being a 'muddy field' in 1Q19 turned into a ready-to-go super-plant by the end of 3Q19, a record-breaking pace for a project of this size. More recently, many have reported on the ramp-up for the Made-in-China Model 3. Not only does the Made-in-China Model 3 have substantially thicker profit margins than other production facilities (and than what was originally anticipated), Gigafactory III also is ramping up production ahead of schedule.

In the most recent earnings call, CFO Zachary Kirkhorn attributed Giga III's smoother, steeper ramp as one of the reasons that "...we've been able to pull in the timeline for other major projects." Kirkhorn was no doubt referring to multiple projects, including but not limited to Gigafactory IV, Model Y, Tesla Semi, Cybertruck, Solarglass Roof, and increased battery production. 

 Lastly, regarding the notion that stock gained due to Credit Suisse's updated position on Tesla -- this came as very good news. Those who listened to the Quarter 3 earnings call for this year may recall a seemingly jaded question posed to Elon Musk. Dan Levy, a Senior Equity Research Analyst at Credit Suisse, asked in regards to Gigafactory III, "You're targeting 3,000 units a week. But we saw with Fremont that the ramp on Model 3 was lumpy. And you sort of ramp and then sort of cut production to fix the bottlenecks. Given this is a brand-new capacity, how smooth should we expect production to be on a week-to-week basis?"

 Elon, who has been known to get frustrated with hollow, entrapping, or "stupid" conference call questions, responded in a snarky, Elon-esque fashion, saying simply, "I mean, if you've got a crystal ball, we'd love to use it." Elon then allowed for a brief, awkward chuckle between himself and Levy, and then continued with his answer. 

 Levy, who has been quite critical of Tesla in the past, raised his bull scenario stock price and offered some remarks, nearly all positive, regarding Tesla's recent progress and success as a company. 

On top of all this, there are many other reasons that contribute to Tesla's surge. Many analysts have been updating their target prices. Tesla continues to release innovative products, while still offering over-the-air updates on their older cars as well. Public image is gaining, notoriety is spreading positively, competitors are dragging their feet, and citizens of the world are becoming increasingly aware and willing to take the necessary steps to be more environmentally conscious. 

 One can reasonably expect that stock may take a few small hits in the coming weeks, before starting a sizable ramp-up in preparation for the 4Q19 earnings report and conference call, the results of which are hard to predict but will likely be positive overall.

Cover image used courtesy of Tesla Inc.

Legal Disclaimer --

This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Christopher Larson, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Christopher Larson is not a shareholder in Tesla, Inc., and does not currently (at the time of this article's publishing) hold any bonds, options, or securities in Tesla Inc. or its affiliates.




Previous  / Next