Despite the recent equity sell-off in October (due to rising interest rates and trade tensions between the US and China), it seems that Tesla overcame the odds by surprising investors with a record quarter. Short sellers took a huge hit as the Tesla Inc stock rose sharply over the past few weeks, from $260.00 to a current average of $347.00 per share, an increase of 32% since 22nd October.

Things continue to bode well for world’s leading electrical car manufacturer as the company recently managed to achieve its target of producing 1000 Model 3 cars per day while reducing production costs in the process. Tesla also answered consumer demands by launching a new roof rack that can be installed on the Model 3 without damaging the glass roof. Orders for the new car accessory flooded in rapidly upon its launch and now it has already sold out. News of the Fed’s recent doubtful stance on its decision to raise interest rates has provided additional gains for the company as Tesla affirmed their decision to invest from $2.5 billion to $3 billion in capital investments over each of the next two fiscal years, gaining investor’s confidence with its plans to eventually reach a production rate of 3000 Model 3s per week in China.

 

Tesla seems to be at a good place at the moment and the myriad of good news have certainly changed the bearish sentiment of investors shorting the stock.

 

However, not all agree with such optimism and it is certainly not the case for the most prominent man that is betting against the company. David Einhorn, along with his $9 billion hedge fund is sticking to his short position and feels that this is as good as it gets for Tesla. Despite being pressure by his investors over his insistence on taking a short position, the man who famously shorted Lehman Brother in 2007 is not impressed. His reason on his position was that Tesla has already peaked after exhausting most of the demand from customers who could afford the highest-priced versions of the Model 3. The 2-year long waiting list created an artificial demand for the Model 3 and an increased production meant that demand for the car is bound to decrease. The demand slowdown is evident as Tesla slashed the prices of the Model 3 by $5,000.

 

I agree to with Einhorn to a certain extent as the current market seem to be overly confident of Tesla’s future. With a bleak outlook of what is to come in 2019, I am not convinced that the stock is able to break through the $360 mark. If we were to base it on historical prices, the only time that Tesla managed to reach such heights was earlier this year when the stock reached $380. The current risks overweigh the potential gains but then again, if you are betting against Tesla today, you either have nerves of steel or a brain made of jello.

 

Shawn Lim

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