2020 has seen Tesla's stock price jump by 127%, opening the year at $425.77 a share, and spiking to $968.52 on February 4. What's even more astounding is that $300 of this price difference took place this week, with a 20% rise on Monday and a further 14% rise on Tuesday.
2020's strong performance follows an increase of nearly 195% in the past 12 months, and a 400% rise from the 52-week low of $178 (June 3, 2019).
Source: Admiral Markets MetaTrader 5, #TSLA, Weekly - Data range: from 4 March 2018 to 5 February 2020, accessed on 5 February 2020 at 9:30am EET. Please note: Past performance is not a reliable indicator of future results.
Why is Tesla's stock price so high?
So why has Tesla's price climbed so high, seemingly out of nowhere? While the stock's 2020 gains are unprecedented, the overall upward trajectory over the past 6 months does have fundamental support.
First, Tesla released a strong Q4 earnings report on January 30. Profits were up, Tesla had made a record number of sales (more in 2019 than the previous two years combined), and Elon Musk shared expectations that the company would increase their sales by a third in 2020 - all good news for the bulls.
Second, Tesla announced it would be releasing its crossover electric SUV, the Model Y, three months early.
Then there is the element of popularity. One of the reasons companies like Google, Apple, Facebook and Amazon are such attractive investment opportunities is because their products are popular with the wider population. When inexperienced investors are looking for somewhere to invest, many start with brands they know and love, and inexperienced investors turning to Tesla helps increase the price for everyone.
What triggered Monday's 20% Tesla price rise?
Beyond the previous months' fundamentals, the stock also benefited from the February 3 earnings report from Panasonic Corporation, which is Tesla's battery partner.
Panasonic posted better-than-expected earnings for Q3, 2019, reporting an operating profit of about $924 million - 33% higher than the average analyst estimate of $620 million, and up 2.9% from the previous year.
Panasonic's price also spiked following the announcement, as seen the the yellow box in the chart below - jumping from a close of $1,083 a share on Monday to open at $1,165 a share on Tuesday.
Source: Admiral Markets MetaTrader 5, #6752.JP, Hourly - Data range: from 11 December 2019 to 5 February 2020, accessed on 5 February 2020 at 10:00am EET. Please note: Past performance is not a reliable indicator of future results.
This was Panasonic's first quarterly profit in its US battery business with Tesla, following years of production issues and delays. This increase in profits is a sign that the costs of battery production are falling, which will benefit all players in the field of electric vehicles - including Tesla.
The Tesla short-squeeze pushing stocks higher
According to Business Insider, #TLSA is the most-shorted US stock, with $16 billion in short interest, which accounts for nearly one fifth (18.22%) of available shares.
The financial positions of these short traders have taken heavy hits over the past few months, with the short market losing $2.5 billion on Monday alone.
With the rise in Tesla's stock price over the past few months paired with Monday's positive news, it led to a short squeeze in the stock, or the rapid increase in a company's share price due to low supply and high demand.
Essentially, traders and investors who were short in Tesla shares close their positions to cut their losses, or are closed out due to margin calls. Because a short trade is a sell trade, closing that trade essentially means the trader is buying back the stock (if you start with 0 shares and open a short trade on one share, your position is -1 shares. Buying to close the trade brings you from -1 back to 0), this means there is an influx of demand to buy Tesla shares, and when demand outstrips supply, prices increase - often dramatically, when there are a large number of short positions on that stock.
Where will Tesla's stock price go next?
Many traders and analysts are worried that there will now be a sudden correction in Tesla's share price. In fact, at the time of writing, Tesla's stock has already dropped to $887.75 a share - a drop of $80.77 since yesterday.
On top of that, some analysts are saying that now it is time for investors to take their profits.
In the long term, though, there are many investors who believe that Tesla still has room to grow, with former Wall Street analyst Gary Black saying on Twitter that Tesla should be worth more than GM, Fort and Fiat Chrysler combined due to having the first-mover advantage.
Billionaire Tesla investor Ron Baron also believes Tesla has room to grow, telling CNBC that Tesla has the potential to hit "at least" $1 trillon in revenue in 10 years, and to continue to grow from there.
In any case, it will be an interesting journey ahead!
If you'd like to take part in the excitement, did you know you can trade Tesla shares with Admiral Markets? Through our Admiral.Invest account, we offer traditional buy-and-hold investing for 4,000+ stocks and ETFs 100% online, with the option to open an investment account for as little as EUR1.
Or, if you'd prefer to actively trade - with the option to short Tesla shares - you can do so with the Admiral.MT5 CFD account. Just click the banner below to open your account and start trading!
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:
1.This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2.Any investment decision is made by each client alone whereas Admiral Markets AS (Admiral Markets) shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3.With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
4.The Analysis is prepared by an independent analyst Jacqui Pretty, Freelance Contributor (hereinafter "Author") based on personal estimations.
5.Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.
6.Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7.Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.