In a stunning comeback for Elon Musk’s Tesla, the electric car manufacturer broke its record for car deliveries last quarter. With 95,200 cars delivered (more than 4,200 more than markets expected), Tesla stock (TSLA) was skyrocketing in after-hours trading, up more than 7%.
Tesla bulls have taken a beating this year. The downtrend was fueled by a combination of demand concerns mixed with expectations of greater competition in the electric car niche. Add to these fundamentals that Elon Musk’s credibility is at an all-time low on Wall Street, and you can easily explain the stock’s poor performance.
However, with this gigantic second quarter, it may be the turn of the bears to go on the run. According to data provided by Ross Gerber on Twitter, there are still significant short positions in TSLA. With so much negativity priced into Tesla, there is no question it could be a stormy day for short sellers.
The big question for investors is whether this is a dead cat bounce in demand or something more sustainable. Gene Munster from Loup Venture’s believes that this is not pent-up demand but rather an indication of the underlying strength of Elon Musk’s company. In an interview with CNBC, Munster also shrugged off concerns about the departure of many talented individuals from Tesla’s board.
The most important fundamental, if Tesla is going to survive in the increasingly competitive electric vehicle market, is whether Musk can continue to scale the business with rising demand. Car manufacturing is a very low margin business. Understanding this, it makes the following statement from Tesla’s production report particularly meaningful,
“We made significant progress streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position.”
The more affordable Model 3 is integral to these scaling aspirations, which makes the 320% boost in that particular car more significant.
Looking at Tesla’s stock price, it is apparent that speculators have been bashing TSLA all year. Down 32% YTD (excluding tonight’s after-hours trading) vs. the Nasdaq’s 22% gains, there have been better tech investments this year. However, as the outlook brightens, some bullish speculation could mix in with the capitulating shorts. This would be an explosive cocktail for Tesla bulls, but they also need Trump and Xi to play ball given Elon Musk’s substantial investment in China.
While the bull/bear debate is definitely not over, this is unequivocally a win for the former. The stakes are now higher than ever for Elon Musk. Another good quarter and Tesla could resume its long-term uptrend. A bad Q3 and the bears will be back sharpening their claws – and longing for a bankruptcy.
Last modified: May 20, 2020 1:04 PM