Are Tesla Shorts Struggling as the Stock Nears $400?



Tesla (TSLA) stock has rallied sharply in the current quarter. The stock rose almost 4% on Wednesday and closed at $393. Tesla stock rose due to news that the company could reduce Model 3’s price by more than 20% in China. The higher stock price on Wednesday took Tesla’s sequential returns to 63%.

Tesla stock, which is shy of the $400 mark, might touch $420 soon. Last year, Tesla CEO Elon Musk tweeted that he could take the company private at $420. The tweet got him in trouble with the SEC. As a result, Musk had to step down as the chairman and pay a penalty of $20 million.

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Are Tesla shorts in a coma?

Tesla stock has been on an upward spree this quarter. The stock started to rise when the company posted better-than-expected third-quarter results. While Wall Street analysts expected Tesla to post a loss, it reported profits. Although there were some questions about the company’s accounting policies, the clear sketch of the company’s future growth path helped the markets.

However, the stock rise didn’t make short-sellers optimistic. The surge in Tesla stock had a negative impact on short-sellers. The stock price rose, which sent most of the short-sellers into a coma. Notably, short-sellers lost more than $1 billion the day after Tesla’s earnings release.

The short interest in Tesla stock fell from 37.2 million shares before the third-quarter earnings to the current level of 28.7 million shares. While the short interest in the stock has fallen since its earnings, the stock price has risen.

Why did Tesla stock continue to rise?

Positive news boosted Tesla stock. The company’s third-quarter earnings turned the market sentiments positive towards the stock. Plus, the Gigafactory 3 update supported the stock. The company said that it built the factory in record time and at a much lower cost than its US counterpart.

Now, Tesla is set to start Model 3 production at the site. Most analysts think that the ramp-up should go as planned without any glitches. Oppenheimer analyst Colin Rusch said, “expectations for a relatively smooth (production) ramp of Tesla’s China facility are increasing.”

Rusch also said that he thinks the company has “learned important lessons from the (production) ramp of Model S, X, and 3 and is implementing best practices in the new factory.”

The rise in Model 3 production could boost the company’s overall volumes in 2020. In the third quarter, Tesla delivered a record 97,186 vehicles. Rusch is confident that the company will achieve its target of 360,000 vehicles in 2019.

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Model 3 price cut

While Tesla is ramping up deliveries, it plans to make Model 3 competitive. The price cut decision seems obvious. The company intends to offer a competitive product in the world’s largest automobile markets. China has a massive demand for mid-size luxury sedans. Even though the country has seen a decline in electric vehicle sales, it’s still huge compared to other countries.

According to a Bloomberg report, Tesla will initially price Model 3 at $50,800 (or 355,800 yuan). The company might reduce the price in the second half of 2020. Tesla will procure items locally, which will result in a decline in imports and mitigate costs, like shipping and duties.

According to the Bloomberg report, Automobility’s founder, Bill Russo, said, “People shop on price — this will help grow the market share of electric vehicles.” He also said, “This will also force the competing products to make adjustments.”

Tesla stock has been rising due to its positive outlook. Besides ramping up Model 3, Model Y production will add to the company’s volumes next year. Beyond 2020, ramping up Cybertruck and Model Y will support the company’s volume expansion. The clear growth trajectory is driving Tesla’s stock price.

Read Tesla, read Why Are Analysts Divided on Tesla Stock? to learn more.


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