Tesla Stock’s Joyride Continues, Bears Lose Billions!

  • Yesterday, Tesla (TSLA) reported its Q4 deliveries. The better-than-expected delivery report supported Tesla stock yesterday.
  • The rally that began in October has shown no sign of subsiding. Bears practically have nowhere to hide now. TSLA’s short interest has fallen since October and short-sellers have lost billions over the last couple of months.

Tesla stock’s joyride

Tesla stock has been on a joyride since October. From a surprise Q3 profit to strong orders for Cybertruck, everything went well for the company in the fourth quarter. Now, the company has delivered another punch to bears with record Q4 deliveries.

Notably, some of the bearish analysts including Cowen analyst Jeffrey Osborne expected the company to miss its Q4 guidance. However, the company’s deliveries were better-than-expected and were above the lower end of its guidance. Read Tesla Lives Up to Expectations, Deliveries Beat Estimates for an overview of TSLA’s Q4 deliveries.

Tesla stock bears have nowhere to hide

Last year, Tesla’s dismal Q1 earnings followed by a wider-than-expected first and second-quarter loss provided ample fodder to bears. The stock was trading with massive year-to-date losses in the first three quarters. However, bulls were in full control in the fourth quarter. Tesla bears expected the company’s Q3 deliveries to disappoint. Some analysts raised a red flag over organic Model 3 demand in the US.

However, the company posted another quarter of record deliveries in the third quarter. Even still, it was less than the 100,000 deliveries that CEO Elon Musk was aiming for. Now, Tesla posted another quarter of record deliveries in the fourth quarter. Higher deliveries help allay some of the concerns over plateauing demand in the US.

Wedbush sounds bullish

Wedbush was a long-time Tesla stock bull. However, last year it downgraded it to a “neutral” in April. But, it raised TSLA’s target price by $100 last month. Now after the Q4 delivery report, Wedbush is again sounding bullish on Tesla stock and sees the stock reaching even $600!

However, overall, Wall Street is quite bearish on TSLA stock and it is trading at a big premium to its price target. TSLA has a mean consensus price target of $307.16. This represents a potential downside of 30.7% over its yesterday’s closing prices. While this is not the first time that TSLA is trading above its price target, it is amongst the widest spread that we’ve seen in the recent past.

Tesla short sellers continue to cut positions

Meanwhile, the unwinding of Tesla stock short positions that began in October has continued. Tesla stock bears have lost billions on their positions and many have squared off their positions. Tesla’s short interest stood at $27,496,754 on December 13 as compared to $37,186,793 on October 15.

In absolute terms, the short interest is the lowest since February 28, 2019. The short interest has fallen in every fortnight since October 15. The short interest data is released on a fortnightly basis only.

Jim Chanos and David Einhorn

Jim Chanos and David Einhorn are amongst the most well-known Tesla short-sellers. The rise in Tesla stock negatively impacted Einhorn’s performance in October. Last year, Musk got into a Twitter war with Einhorn. Einhorn taunted Musk over Tesla Solar that’s been a weak point for the company despite Musk’s focus.

Notably, during the Q3 earnings call, Musk said that Tesla’s energy and operations might be as big as the automotive business. However, despite Musk’s focus, TSLA’s Solar operations haven’t really taken off like its automotive operations.

Any chance for Tesla stock bears?

Tesla’s upcoming Q4 earnings could be another tug of war between bulls and bears. The company posted a surprise profit in Q3 2019, only the fifth time since it went public. During its Q2 earnings call, Elon Musk was confident that the company would be near break-even in the third quarter and profitable in the fourth quarter.

Eventually, Tesla ended up posting a profit in the third quarter. However, some analysts were not convinced that the Q3 margins are sustainable.

Soaring valuations

In the Q3 earnings release, Tesla talked about sustainable profitability with temporary exemptions especially associated with ramp-ups. Analysts expect the company to post a net profit in the fourth quarter. However, profitability has been an area of concern for Tesla.

If the company fails to live up to expectations in the Q4 earnings, bears could fancy their chances, especially given the soaring valuations after the recent rally. Notably, Tesla is currently trading way above the valuation that Ashwath Damodaran, the “dean of valuation,” gave the company. Read Tesla Stock: Is the ‘Dean of Valuation’ Wrong on TSLA? for more insights.