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TSLA Stock and NIO Defy Gravity on Electric Car Optimism

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  • Tesla (NASDAQ:TSLA) and NIO have gained sharply over the last few months, even as established automakers’ stock prices continue to sag. TSLA stock has been hitting new milestones ever since its surprise third-quarter profit.
  • The stocks rose due to optimism about electric car sales. Tesla’s market capitalization has almost reached $100 billion—way above the combined market capitalization of Ford (NYSE:F) and General Motors (NYSE:GM).
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TSLA and NIO stock rise

Electric vehicle makers’ stock prices have been on fire over the last few months. So far, NIO (NYSE:NIO) has gained 28.6% in 2020, while TSLA stock has gained 30.8%. NIO stock has risen more than four-fold from its 52-week lows, while TSLA stock has more than tripled from its 2019 lows. While NIO is still trading at less than half of its 52-week highs, Tesla is hitting new highs. Tesla stock has been unstoppable ever since it reported a surprise profit in the third quarter of 2019.

The rally in TSLA stock started in October. The company’s surprise profit in the third quarter spooked short-sellers. They expected that the company would continue to lose money. The stock also rose due to a positive response to Tesla Cybertruck and progress at the China Gigafactory. Tesla vehicles built in China would also qualify for a subsidy in that country, which would enable Tesla to better compete with Chinese EV makers. Notably, China’s EV sales have sagged over the last few months, which had a negative impact on Chinese EV makers, including NIO.

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NIO stock rose to multi-month highs

Tesla plans to have a Gigafactory in Europe, which would increase its production footprint. Notably, Tesla is supply constrained, so more production should lead to higher sales. The company’s fourth-quarter deliveries were also better than expected. The positive news doesn’t seem to stop for the stock. According to reports, the company has reached a deal with Michigan to sell its vehicles directly to customers. TSLA stock rose more than 7%, while NIO stock gained 10% in yesterday’s trade. NIO is now trading near multi-month highs.

Tesla short-sellers like Jim Chanos and David Einhorn are hit

The rise in TSLA stock triggered a short squeeze and bears have lost billions. David Einhorn and Jim Chanos are among the well-known Tesla short-sellers. Short-covering has also helped TSLA stock move higher. Meanwhile, the optimism about EV sales is helping NIO and Tesla. Notably, Tesla reported strong top-line growth even though established automakers are struggling. There aren’t many publicly-traded companies of scale that offer the kind of growth that Tesla could witness. In a market where there’s plenty of money but not enough growth, Tesla offers solace to growth-hungry investors. Several analysts have been raising Tesla’s target price since October.

Can TSLA stock continue to rise?

Some bullish observers see even more upside in TSLA stock. The company is expected to report strong growth in shipments. Tesla’s software capabilities and battery technology are ahead of its peers. However, generating sustained profits has been a struggle. Some bullish analysts expect economies of scale to help propel the company’s profitability. That said, the road to profitability won’t be easy for Tesla as the competition heats up in the EV space. Tesla is expected to release its fourth-quarter earnings later this month, which could be a reality check for the company. For now, Tesla and Elon Musk have won the match with short-sellers.

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