TSLA stock has had an extraordinary start to 2020, soaring up 110% since January 1 after Tesla (NASDAQ:TSLA) posted its second consecutive quarter of profitability.
Tesla suffered a dismal first six months of 2019 as the company burned through US$1.1 billion in cash amid struggles with the production and delivery of its more affordable Model 3 car, dragging TSLA shares to a low of $177 in June. However, the latter half of the year was far more fruitful for the electric carmaker as it generated US$1 billion in cash even after capital expenditures and posted its second straight quarterly profit. The lack of profitability had hung over Tesla like a bad smell, but with the issue addressed, TSLA stock has gone on a tear.
However, analysts have pointed out that Tesla’s exceptional performance in recent weeks is about more than just profits and the potential for international expansion, but rather a gamble on the company’s future. Investment management firm ARK said it expects TSLA shares to soar to US$7,000 in five years based on a belief that Tesla can increase profits, decrease costs, and build a fully autonomous taxi network, as well as pointing to its firm grip on the small, but growing battery electric vehicle market.
But it’s not just Tesla’s bulls driving those eye-watering gains; its critics have also played a pivotal role. According to data from S3 Partners, TSLA stock is the most shorted stock in the US, with its short interest accounting for nearly US$16 billion and 18.22% of its float. Tesla’s short sellers have been badly burned by its recent parabolic rise and were down over US$8 billion in mark-to-market losses on Monday.
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Now, those short sellers are being forced into covering their positions and buying back TSLA stock, which in turn creates higher demand and driving gains in the stock in a phenomenon also known as “a short squeeze.”
TSLA shares are currently trading for $887 and are showing no signs of slowing in what could be potentially the biggest short-squeeze in history.
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