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Citron: Tesla Stock’s Risk-Reward Skewed to Downside

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Tesla stock (TSLA) has had a terrific run-up since the company’s third-quarter earnings release. While the company has chalked out its growth trajectory fundamentally, an ongoing short squeeze is boosting its stock technically. Tesla bulls are welcoming the all-time highs, while shorts are facing a tough situation.

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Citron on Tesla stock

Citron Research, once a short on Tesla stock, turned bullish last year. The company wrote that Tesla’s story had “become too compelling to ignore.” However, this year, Citron has taken a neutral stance on the stock, stating that Tesla CEO Elon Musk has “too much on his plate.”

With the recent surge, Citron tweeted, “Citron took A LOT of criticism for change of heart on $TSLA. Short interest now at all-time lows. Capitulation has created a ‘too much too fast’ stock. Short term risk/reward now skewed to downside. Much respect to Musk but we are buyers 100 pts lower.”

The tweet suggests Citron likes Tesla stock, but not at its current level. The sharp run-up in the stock has made Citron cautious. This quarter, the stock has risen 79%. However, in this year’s first nine months, Tesla stock fell 28%.

Short interest in Tesla stock

Citron has also claimed short interest in Tesla is at an all-time low. According to Nasdaq, short interest in Tesla has continued to fall. Just before the company’s earnings release in October, short interest in Tesla stock stood at 37.2 million. It has now fallen to 27.5 million but is still higher than the stock’s low of 24.7 million in January 2019. To learn more, read Tesla Stock Recent Surge Burns Short Sellers.

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The recent run-up in TSLA

Tesla stock has risen due to clarity in the company’s earnings growth. Its surprise third-quarter profit began the rally, and the company’s expansion plans and new product launches have supported the stock. In the next year, higher Model 3 production due to the startup of Tesla’s Gigafactory 3 in China could raise its revenue.

According to Reuters, the factory has just begun delivering vehicles. The Model 3, before subsidies, is set to be available for $50,000 (355,800 Chinese yuan) in China. Reuters also stated that Tesla vice president Tao Lin said, “From now onwards China-made Model 3 vehicles will start running on China’s large streets and small lanes.”

The beginning of deliveries from the factory is a significant milestone for the company, which built the factory in a record ten months. Tesla began Model 3 production in the shortest possible time and has rolled the car out for delivery, showcasing its expertise gained from previous scale-ups.

The company plans to build another Gigafactory in Germany, which will produce the Model Y. Tesla is hustling to produce the Model Y at its factory in Fremont, California, and expects to begin production next summer. Therefore, in the next year, the company expects higher volumes.

Expectations from Q4

In TSLA’s third-quarter earnings update, Musk said he expects to exceed 360,000 units in deliveries in 2019. In this year’s first nine months, the company delivered 255,561 units. Therefore, to achieve Musk’s target, the company needs to deliver at least 104,439 units in the fourth quarter. The company is set to publish its fourth-quarter delivery data later this week. TSLA stock could continue to rally in anticipation of record deliveries in Q4.

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