Tesla Stock Rises, Bears and Short Sellers Run for Cover

  • Tesla Inc. (TSLA) stock has underperformed broader markets and other automakers like Ford (F) and General Motors (GM) this year. However, it’s having a strong run in October. So far, the stock is up a cool 36.2% this month and has recouped almost all of its 2019 losses.
  • If the momentum stays, Tesla stock could turn positive for the year. Notably, the company’s market cap or capitalization beat General Motors’ this month.

Tesla stock performance

Tesla stock has gained 36.2% this month. While October started on a weak note amid a “miss” on deliveries, there has been no stopping for the stock thereafter. TSLA’s third-quarter earnings were enough to send bears and critics in a depression. Notably, the company posted a surprise profit in the quarter. Tesla short sellers had a pretty nightmarish run on Thursday and Friday amid the stock’s rally.

Meanwhile, despite the strong rally this month, Tesla stock is still down 1.4% this year. That said, if the momentum sustains, it could soon turn positive for the year. Notably, both F and GM are trading in the green this year. However, thanks to TSLA’s strong October performance, its market cap beat GM. TSLA’s market cap was anyways higher than Ford’s.

Tesla stock: What really fueled the rally?

Tesla stock had a strong rally after its Q3 earnings release. Its earnings were far better than expected. So, given the background, it is not surprising to see the stock rise post the release. To add to that, given the high bearish bets against Tesla, there was also a short squeeze.

Incidentally, one of Tesla bulls turned bearish before the earnings. Read Big Tesla Bull Turns Short-Term Bear for more insights. Also, several Wall Street analysts raised Tesla’s price target after its splendid third-quarter earnings. To sum it up, it was a classic example of bears running for cover amid a stock’s rise.

It was more than earnings beat

While the earnings beat and short squeeze aided Tesla stock’s price action, there were a couple of other important aspects as well. During the third-quarter earnings call, TSLA  sounded positive about sustainable profitability. This is one aspect that bears have used to criticize the company.

Notably, the third quarter of 2019 was only the fifth profitable quarter for TSLA. Now, the company believes that profitability would be a norm rather than an exception. Also, CEO Elon Musk was quite optimistic about the company’s energy business whose potential he feels could be even bigger than the automotive business.

Tesla’s new Gigafactory

The company also plans to finalize the location of its Europe Gigafactory before the end of the year. Tesla shared photographs of its China Gigafactory in its third-quarter release. The progress has been good. China is a key market for TSLA and other electric vehicle makers. However, the country’s NEV (new energy vehicle) sales have been weak over the last few months.

Overall, it was a splendid performance from Tesla in the third quarter and the stock reacted accordingly. However, Warren Buffett might not like some aspects of TSLA’s quarterly earnings. Read What Warren Buffett Might Say about Tesla’s Q3 Earnings for more analysis.