Tesla’s stock has doubled in the past month, and nobody is entirely sure why.
Tesla’s stock is currently worth almost $890 a share — more than double what it was just last month. This is not normal. For context, in that same time period the the S&P 500, a measure of the stock performance of the countries most valuable companies, rose just 1 percent.
The electric car company’s current stock price gives it a market capitalization — a rough proxy for what you could sell the company for — of $160 billion, making it now in league with the value of Salesforce, McDonald’s, Citigroup, and Netflix. That’s also approximately equivalent to the GDP of Algeria.
Those of you with longer memories might remember back in 2018 when Tesla’s CEO Elon Musk got in hot water for tweeting that he’d take the company private when it reached $420, a price that seemed to many too high at the time. Now it seems low.
What’s going on? Tesla’s high stock price seems to be a confluence of a number of factors, including short selling, a good earnings report, positive press and mainstream popularity.
1) A very big short squeeze
Tesla is a favorite stock for short sellers, or investors who make money by betting the stock price is going to go down. Indeed, it’s the most-shorted US equity. But when these investors realize a stock might continue to rise — say a very good earnings report — they’re forced to close out their position and buy the stock to stop further losses. Added demand from Tesla’s short sellers caused what is called a short squeeze, which drives the price of the stock even higher.
2) A very good earnings report
Tesla’s fourth quarter earnings report last week beat analysts’ earnings expectations. It’s forward-looking estimates were sunny too, with the electric car company promising to grow sales by a third this year. A month earlier, the company had announced record vehicle sales and deliveries, which had been a continual worry for shareholders who questioned whether the company could meet its lofty production goals. Altogether, these amount to reasons for shareholders to expect the stock to be worth more in the future.
3) A pleasant surprise with Model Y
Tesla’s crossover vehicle announced last month that it’s going to deliver its crossover SUV, Model Y, months ahead of schedule. Originally expected in the fall of 2020, Tesla expects the highly anticipated Model Y to ship next month.
4) A very good TV spot
On Tuesday, major Tesla investor Ron Baron went on TV to say he thought the company could reach $1 trillion in revenue in 10 years. For context, Tesla’s 2019 revenue was $24 billion. Baron, whose investment firm already holds almost 1.63 million Tesla shares, said in the interview that if it were up to him, he’d buy even more.
5) Mainstream popularity attracts inexperienced investors
Remember when everyone and their grandmother was talking about Bitcoin at Thanksgiving dinner? That level of widespread popularity for an investment causes serious demand. It’s also a serious warning sign that things are getting too heated. CNBC reported that lots of new investors are buying Tesla stock at its now very high price, with 12,000 accounts on consumer stock trading hood Robbinhood buying it for the first time yesterday. Its currently the most popular stock on the site.
Author: Rani Molla
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