Tesla's Surprising Surge Looks Like a Short Squeeze to Analysts

Tesla Inc. analysts say a short-seller squeeze may have been behind the stock’s gain of almost 10 percent on Wednesday, its best performance in more than two years. As Morgan Stanley put it, the stock move reflected “more on investor positioning” rather than a reaction to “truly incremental data on fundamentals.” While most of the information coming out of the company’s shareholder meeting this week wasn’t new, Wall Street is honing in on Chief Executive Officer Elon Musk’s commitment to his ambitious Model 3 production goals and forecast for positive net income and cash flow in the second half of the year.

Here’s what analysts are saying:

Morgan Stanley, Adam Jonas

“We think the stock move reflects more on investor positioning (bearish) than truly incremental data on fundamentals.”

Musk saying it’s “quite likely” that Tesla will achieve 5,000 Model 3 production per week by early July is “one year ahead of our expectations.”

“If Tesla were able to achieve 5,000 of weekly production of Model 3 and avoid a significantly dilutive or expensive capital raise, it could trigger a continued squeeze in the name.”

Rates equal-weight, price target $291

Evercore ISI, Arndt Ellinghorst

Notable comments at the meeting that may have led to some short squeeze included all parts of Model 3 production capable of 500 units a day/3,500 a week, and Tesla’s reasonable confidence that a 5,000-units-a-week production rate could be met by the end of the quarter.

Also notes the outlook for positive GAAP net income and cash flow in third and fourth quarters, confirmation of plans to build a factory, battery and vehicle in Shanghai -- with details to be released shortly -- and the teaser of Model Y, which will be revealed next March.

“While we are not sure that any of the above is particularly new news for close Tesla/Elon followers, the reiteration of Model 3 targets as we get closer to the end of the quarter has likely led to some revaluation.”

In line, price target $287

Bernstein, Toni Sacconaghi

Tesla’s recently introduced all-wheel-drive and performance edition versions of the Model 3 could “materially impact gross margins.”

“Our analysis suggests that strong adoption of both could boost average selling prices by up to ~$5,000-$11,000 in second half and have marginal contribution of 70 percent to 90 percent, potentially boosting gross margins by a stunning 700-1900 bps relative to ‘near breakeven’ in second quarter.”

“While boosting margins in second half of 2018 through mix could mollify investors, we worry that such a mix are unlikely to be sustainable, and we worry that a continued delay of the $35,000 base model may alienate consumers, leading to increased cancellations, which have purportedly spiked recently.”

Market perform, price target $265

Piper Jaffray, Alexander Potter

The “biggest drivers” of Wednesday’s outperformance included Tesla’s 5,000 Model 3 per week goal, the reiteration of earlier guidance that GAAP net income will be positive in third quarter, with positive cash flow in third and fourth quarter, and Tesla still insisting that no incremental debt or equity will be required.

Potter also notes that an attempt to strip Musk of his chairmanship failed.

Overweight, price target $369

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