Wednesday, February 19, 2020

Tesla stock surges nearly 14%, sending short-sellers scrambling

Feb 05. 2020
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By The Washington Post · Rachel Siegeland Faiz Siddiqui

Tesla's red-hot run reached new heights Tuesday, as shares surged past $900 in a rally that stunned Wall Street, a dramatic reversal of fortune from the electric vehicle manufacturer's situation just eight months ago.

Shares spiked more than 15% in morning trading, just after the automaker closed Monday up 20% at a record-high $780. Propelled by better-than-expected quarterly profits and car deliveries, Tesla now has a market cap of $160 billion - more than three times that of legacy automaker General Motors.

The stock finally closed at nearly $890, after notching a daytime high Tuesday of $969 that dropped sharply just before the market closed.

The electric-car maker often makes headlines for its eclectic co-founder and chief executive Elon Musk. But the company's share price stands on it own. In the past six months, it's soared 220%. This year alone, it's up 86%, outperforming every stock in the Standard & Poor's 500, plus bitcoin and gold.

"Tesla shares continue to move higher in an eye-popping fashion," wrote Wedbush Securities analyst Daniel Ives. "For Musk, despite all the noise over the last year and balancing myriad projects at Tesla (while running SpaceX and launch targets) last week's earnings [and] guidance completed a 'comeback story for the history books.' "

Musk famously tweeted he had "funding secured" to take the company private in August 2018, kicking off a spate of legal and regulatory problems and investor concerns that depressed the stock through the end of that year and kicked off a volatile 2019. Meanwhile, Tesla faced mounting problems including concerns over demand, mounting quarterly losses and a shortage of cash. Ultimately, Tesla's stock dropped to a low of about $177 in early June.

But the tides turned as Tesla beat Wall Street expectations by turning a profit in the fall. Meanwhile, demand concerns coinciding with the expiration of a federal tax credit for its vehicles never materialized. Musk's court battles, along with his and Tesla's regulatory scrutiny were resolved.

Last week, Tesla posted another profit, pushing stocks up further. The company said that it would increase vehicle sales by more than a third this year and that it was forging ahead on producing its next car, a compact sport-utility vehicle. The company also told investors that it should be profitable moving forward - something it has never achieved on an annual basis.

Tesla is now the second-most valuable automaker after Toyota, which is worth roughly $232 billion. But Tesla sales are a fraction of its rivals: GM and Ford each delivered more than 2 million cars in the United States in 2019. Tesla, meanwhile, delivered 367,500 vehicles globally.

This week's advance came as billionaire investor Ron Baron said Tesla could reach "at least" $1 trillion in revenue in a decade. He said his investment firm, Baron Capital, would be holding onto its nearly 1.63 million shares because their ascent is "just the beginning."

"It's nowhere near ended at that point and time," Baron said Tuesday on CNBC. "There's a lot of growth opportunities from that point going forward."

Tesla also got a boost after Argus Research raised its share price target to $808 from $556 on Monday. But the stock still bulldozed past those expectations at Tuesday's open.

The rally hasn't played well for investors betting against Tesla. Research from S3 Partners estimates that short-sellers have lost more than $8 billion since the start of 2020, which includes nearly $2.5 billion in losses on Monday's performance. S3 Partners lists Tesla as the largest short in the domestic market.

Craig Irwin of Roth Capital Partners told CNBC that much of the attention on Tesla has come from financial heavyweights.

"I think this is largely the fear of missing out," Irwin said. "The number of large hedge funds calling in, the number of institutional investors calling in, saying 'Where does it stop? What's the catalyst?' "

The stock surge follows a run of good news for Musk, where he's survived several legal and regulatory battles - including a 2018 Securities and Exchange Commission settlement that required him to step aside as Tesla chairman, leaving both he and the company on the hook for separate $20 million fines.

Musk sparred with the SEC over his allegedly market-moving tweets, including one in 2018 that he had "funding secured" to take the company private at $420 a share. Last year, the SEC asked a federal judge to hold Musk in contempt over an apparent violation of the prior agreement - stemming from the 2018 tweet dispute - that would require Musk to have his communications prescreened by securities experts.

The SEC alleged Musk had issued misleading figures when he said Tesla was on pace to produce 500,000 cars last year, when in reality it would only deliver up to 400,000. Ultimately, however, the parties resolved their dispute with little fanfare, settling on an expanded criteria over which of Musk's communications must be vetted.

In December, Musk was cleared in a civil suit brought by a cave rescue volunteer, who alleged Musk defamed him by calling him a "pedo guy" amid coverage surrounding the rescue of a Thai boys' soccer team from a flooded cave.

Meanwhile, Tesla posted consecutive profitable quarters to round out 2019 and met the low end of its delivery estimate: 360,000 to 400,000 cars for the year.

On the company's earnings call last week, Musk said Tesla is has started production of its Model Y, the crossover based on the platform of its best-selling Model 3, surprising investors and close observers who expected it later in the year. Tesla expects to put the first deliveries in the hands of customers by March. And Musk has said he expects the Model Y to be Tesla's best-selling vehicle.

Meanwhile, as the company has seemed to find its footing on its core business of selling cars, Musk has sounded a lot more like a corporate CEO - tamping down expectations on some of his wilder predictions, such as a promised fleet of 1 million robotaxis by 2020. It was partially a reference to Tesla's plans for "full self-driving," Tesla's Autopilot driver-assistance function that would enable vehicles to travel on city streets, highways, parking lots and elsewhere without human input. On the earnings call, Musk was asked about his promise that the system would be "feature complete" by the end of last year.

"The feature complete just means like it has some chance of going from your home to work let's say with no interventions," he said on the call last week. "So that's - it doesn't mean the features are working well, but it means it has above zero chance. So I think that's looking like maybe it's going to be couple of months for now."

 

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