Tesla: Stock of The Year?

As we are all aware, the COVID-19 pandemic has wreaked substantial havoc for many of the stocks on the global markets. Many companies are still taking the brute toll of the prolonged effects of the pandemic - but not all is gloomy. There have been stocks that have soared during this volatile period, namely Tesla Inc (NASDAQ: TSLA). Whilst the stock dramatically sold off from its highs of $944.78 in mid-February 2020 to its low of $350.51 in March, we have subsequently seen the price increase by more than 400% to historic highs of $1,794.99.

On a COVID resistant rally

Tesla’s gravity-defying rally in 2020 has far exceeded the outlook that analysts and investors would have expected from early this year. Its recent surge comes from an analyst who has more than doubled his target stock price, far surpassing others on Wall Street and, hence, setting historic high price targets. Alex Potter, an analyst from Piper Sandler, raised his target price to $2,322 from the previous target of $939. This target price stems from the fundamentals that initially started the rally. Tesla delivered more than 90,000 vehicles in the second quarter, an increase from its first-quarter deliveries. This is no normal feat as the car manufacturer was facing plant shutdowns due to a global pandemic further compounded by a substantial decline in the automotive industry outlook. In fact, Tesla’s main factory in California was shut down at the beginning of the second quarter but production was boosted from its Shanghai car plant.

Source: Bloomberg

The fourth-wealthiest person in the world

Nonetheless, it has not stopped the bears from piling on their short bets. Figures from Bloomberg News have shown that the value of the short bets has surged to $20 billion. Yet critics have voiced that betting against Tesla may be a bad idea. Carson Black, founder of the renowned short-selling research firm Mussy Waters Capitals, commented “it’s one thing to bet on Elon Musk, but it’s another thing to bet against him…. the guy specializes in pulling rabbits out of the hat”. As the Tesla stock rocketed to all-time highs, reaching a market capitalization of approximately $321 billion and becoming the 10^th largest US stock, Elon Musk temporarily became richer than Warren Buffet.

The expected battery revolution

LG’s products use lithium nickel manganese cobalt (NMC) oxides, offering high energy density, which makes them more expensive but longer lasting. CATL uses lithium iron phosphate (LFP), which is cheaper and provide lower density.
Batteries account for approximately 25-40% of total costs for mass-manufactured battery powered electric vehicles accoring to BloombergNEF.

The outlook for Tesla is still uncertain as the global cases of COVID-19 are rising and discretionary spending is mostly driven by consumer sentiment. Having said this, the performance of Tesla during unprecedented times has excelled predictions, which may not come as a surprise due to the favorable attitude towards the stock.