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The Surprising Reason Tesla Stock Surged on Monday

Last Updated September 23, 2020 1:49 PM
William Ebbs
Last Updated September 23, 2020 1:49 PM
  • Tesla shares are dramatically outperforming the market with a surprise double-digit rally Monday.
  • The automaker is quickly recovering from the coronavirus-driven market correction as China’s economy gets back online.
  • Tesla’s Shanghai factory will help the company beat expectations in the first and second quarters of 2020.

Tesla’s (NASDAQ:TSLA) shares are soaring again as the electric automaker shrugs off the impacts of the Wuhan coronavirus pandemic. The stock rose 13.6% to settle at $650.95  at the close of trading on Monday. For comparison, the wider S&P 500 fell around 1% as investors took profits after last week’s record-breaking rally.

Tesla is rising because of encouraging developments in China where domestic auto sales are starting the pick up again after a first-quarter rout. The automaker has just completed its Shanghai factory and will soon ramp up production in this critical market.

Better-than-expected first- and second-quarter results may help the stock continue outperforming the market.

Tesla stock is dramatically outperforming the market as it rebounds from the coronavirus crash. | Data by Ycharts.

Tesla Gave Aggressive Guidance for 2020

Tesla started 2020 on a strong footing after its slam-dunk fourth-quarter earnings report.

The company reported 112,000 deliveries and projected that full-year 2020 vehicle deliveries would comfortably exceed 500,000 . This is a massive jump in sales, and it hinges largely on the Chinese market where Tesla is reporting the most potential for sales growth.

Surprisingly, Elon Musk didn’t withdraw guidance despite the coronavirus pandemic, which ravaged China before spreading to infect almost 2 million people  around the world. The company is sticking to its aggressive projections, and the market is starting to believe Elon can pull it off as China’s economy shows convincing signs of recovery.

Chinese Auto Sales are Rebounding

Chinese auto sales cratered in the first quarter – dropping 82% in February and 48% in March . But while the March showing is bad, it’s noticeably less bad than the previous month. Remarkably, Tesla has still been able to thrive in this terrible macro environment.

Tesla sold 10,160 vehicles in March  (up from 3,900 in February), making that its best month on record in China despite coronavirus. Tesla is set to continue breaking records as the new Shanghai plant allows it to sell its vehicles at more competitive prices.

Here is what Elon Musk had to say in the fourth-quarter earnings call:

We need to bring the Shanghai factory online. I think that’s the biggest variable for getting to 500,000-plus a year. Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here.

Now, those challenges are in the rear-view mirror as Tesla’s Shanghai factory begins mass-producing Model 3 cars for the Chinese domestic market.

Tesla to Start Selling More China-built Model 3 Vehicles

China sales will be key to keeping Tesla’s revenue growing. | Data by ycharts.

According to a recent press release, Tesla has started producing two more Model 3 variants at its Shanghai plant . This means the cars will be exempt from import duties, which will allow Tesla to boost its profit margins and offer cars at a more competitive price-point.

The long-range Model 3 will be priced at 339,050 yuan ($48,000)  with deliveries scheduled for June, while the Performance Model 3 will be priced at 419,800 yuan ($59,500)  with deliveries scheduled for the first quarter of 2021.

The long-range cars should hit the market in time to help Musk reach his goal of 500,000 deliveries.

Not Everyone is Optimistic

As usual, the market is divided on Tesla and its lofty ambitions. Short interest is currently 26% of shares outstanding , and several analysts believe the company’s projections are too optimistic  considering the potential impact of the coronavirus-related lockdowns.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered trading advice from CCN.com.