If there is one stock to track, if not to understand (or not really to understand), then it is the Tesla stock. After record valuations, which saw the share rise from one high to the next in the last few months, it rose again enormously today. The price shot up by 12 percent from just over 1,544 dollars to currently 1,760 dollars. And with that, Tesla’s market valuation jumped to 327 billion dollars – and the trading day has just begun.
A remarkable year-to-date quadrupling of the share price, as the stock was at 430 dollars at the beginning of the year. For some days now, Tesla has thus been the most valuable automobile company in the world, even though the Californian electric car manufacturer only produced and sold 367,500 cars in 2019. Tesla is thus worth more than VW, Honda, Daimler, BMW, GM, Ford, Fiat and Suzuki put together. And it is also worth 50 percent more than the second-placed Toyota.
Tesla has thus also achieved the second goal set by the Supervisory Board and thus another megabonus for Elon Musk. One of the targets set by the Tesla boss was to raise the share price by 50 billion dollars in 12 tranches. For each 50 billion (and other KPIs), he can expect to receive a payout of more than 600 million dollars in additional shares. That was in March 2018, when the Tesla=market value was below 50 billion dollars.
So what are the reasons for this seemingly absurd price rally? Several factors are currently contributing to this:
- Short squeeze
- Better than expected figures for the 2nd quarter
- Date for Battery Day
- Announcement of Level 5 Autopilot
- Small investors
Ad 1: Tesla is one of the most shorted stocks on the market. Stock exchange traders are speculating that the stock will fall. Simply put, shorts are a kind of insurance business for stock buyers. It actually comes from the exchange rate business, where manufacturers wanted to make sure that when they deliver abroad in other currencies they do not lose out on exchange rate fluctuations when the invoice is paid by the buyer several months later.
And it’s similar here, only here it’s not about currencies but about stocks. The buyers want to buy stocks at a certain point in the future at a certain price. A trader guarantees to sell the shares – for a premium – at a date in the future at that price. If the stock price at the time of the handover is lower than agreed with the buyer, the trader also earns the difference between the prices. He could buy at a lower price. However, if the share price is higher, he loses.
If the trader has speculated for a low price and is about to deliver the shares at current higher rates with ever more rising stock prices, a run on shares in the market begins. If the offer cannot keep up with the demand, such ‘shorted’ shares can cause massive price rises. And this seems to be exactly what’s happening (again) with Tesla stocks.
Ad 2: After Tesla has already announced its sales figures for the second quarter of 2020, which were above analysts’ expectations despite the closure of the factory due to corona and the economic situation during the global pandemic, the announcement of the quarterly financial results is due this week. It appears that Tesla is expected to announce a profit, presumably a small one. This would be the fourth consecutive quarter that Tesla has made a profit, and thus the company could be included in the S&P Standard.
Ad 3: Due to Corona’s delay, September 22nd, 2020 has been set as the day of the shareholders’ meeting and Battery Day. At Battery Day, Tesla is expected to announce a new generation of proprietary battery technology that could represent a breakthrough in range and durability. Battery technologies are proving to be the most important component in the construction of electric vehicles and other products today. Currently, Tesla’s batteries and technologies offer the best combination of price and performance of any electric car manufacturer on the market. Not to forget that batteries are the ‘holy grail’ for storing energy from wind and sun dependent sustainable energy technologies.
Ad 4: Tesla CEO Elon Musk announced a few days ago that the ‘basic functions’ for the Tesla autopilot Level 5 are more or less solved this year. He did not go into detail about what exactly he meant by ‘basic functions’. If this is true – and here we want to remain a little skeptical – then completely new business models could offer Tesla further sources of income where fantasy no longer limits us.
I have already written a more detailed article about possible further business models and sources of revenue.
Ad 5: It should not be underestimated that since the Corona lockdown a large number of small investors have discovered the stock market for themselves. Trading platforms such as Ameritrade or E-Trade are reporting record growth in new stock accounts, and these are busy speculating. This can also be seen in share prices and market values, which seem to be completely decoupled from economic data.
It is unclear whether the share price development at Tesla will continue in this way. In any case, Tesla is setting a high pace, with several new planned factories in the USA, Germany and Asia, and expansions of existing production facilities. It is also becoming more and more apparent that Tesla should not be regarded as a pure car manufacturer, but as a digital energy company. The powerwalls seem to be gaining traction and more digital business models are coming to beat them.
This article was also published in German.