Tesla Hits the Fast Lane

By, Joshua Barzola

Although we are only two months into the year, the past couple of weeks have surprised even the biggest Tesla fanatics as the stock has tripled in price over six months. The sudden rise has shocked many, leaving people wondering how Tesla’s stock got there.

Just like its CEO’s Twitter account, it has been clear for some time that the electric vehicle manufacturer has been extremely volatile for years. A lot of the skepticism from investors was due to questionable decision making by Tesla and how it could mass-produce electric vehicles. This doubt in the company saw many initiate short positions on the stock, hoping to cash in on the stock’s misfortune. 

However, since the start of 2019, Tesla has been consistently providing hope for its future. Whether it be Tesla’s new China production line, expansion of its German production, or Elon Musk’s optimistic goal of mass-producing 500,000 electric vehicles by year-end, investors see the opportunity for growth in the company’s future. The stock rallied drastically once the company reported better than predicted revenue forecasts in the fourth quarter of 2019, alongside its first-ever back to back net profit earnings. 

Many news outlets and finance experts had come out to criticize the value of the stock. Nicholas Hyett, an analyst at Hargreaves Lansdown, stated, “Is it worth more than Volkswagen — a company which manufactured 10.8 million vehicles in 2018 to Tesla’s 365,000 in 2019 and posted profits after tax of €12.2bn to Tesla’s [US]$775 [million] loss?”

The question remains then, how did Tesla’s stock price get to a high of US$968.99 if many financial experts questioned the validity of the price when it was US$300.00 lower? 

The most expensive and time-consuming part of electric vehicle production is the battery component. This leaves the electric auto manufacturer heavily reliant on its battery supplier, Panasonic. For many years, due to the lack of focus on ramping up car production, Panasonic found it difficult to push down material costs and erase losses from making Tesla batteries. Once Panasonic had reported a quarterly profit in its battery business with Tesla, alongside investor reports indicating the stock would rise tenfold by 2024, the stock rose 20.0% in a single day.

When the news of Panasonic’s earnings broke, short-sellers suffered unrealized losses of over US$2.5 billion, according to Reuters. Short sellers are investors that sell borrowed securities in anticipation of a price decline. A short seller never actually owns the stock. They borrow it from a broker/dealer and the investor is required to buy back the stock at some point.

A major reason for Tesla reaching US$968.99 per share was due to the short squeeze that the stock had undergone. When a heavily shorted stock such a Tesla begins to rise sharply in price, this forces short sellers to close their position creating more volume and buyers of the stock. Even with many short-sellers hoping this is only temporary “hype,” many still closed their positions in exchange for substantial losses.

Currently, the electric automaker is the second most valued car company in the world, only behind Toyota. However, Tesla stock will continue to be significantly volatile, under heavy media scrutiny and buying pressure due to fear of missing out (FOMO). The potential for further growth is yet to be seen, but at this current pace, Tesla could be in for a fiery start to the new decade.

Photo by Jannes Glas on Unsplash.

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