This year’s short squeeze on Tesla (NASDAQ:TSLA) will go down in history.
Shares have more than doubled in value, just since the start of 2020, and have gone parabolic since February began. They closed at $887 each on Feb. 4, giving the electric car and battery maker a market capitalization of $160 billion. That’s more than three times General Motors (NYSE:GM) and four times Ford (NYSE:F), on less than one-fifth of each company’s revenue.
Despite this, 24% of the company’s outstanding shares were still being sold short on Feb. 4. This means people were borrowing shares from the market.
As 19th century speculator (and eventual bankrupt) Daniel Drew put it, “He who sells what isn’t his’n, must buy it back or go to pris’n.”
The bears got a little respite overnight, as Tesla fell back 2.6% to open at $864. In early morning trading Feb. 5, shares are back below $800, down over 13%.
More Than a Short Squeeze
While this may be the “greatest short squeeze in history,” there’s more going on here.
Tesla has proven CEO Elon Musk’s point, that electric cars are the future. Electric vehicles lack the complex motors and transmissions of gas-powered cars. In theory they’re simpler to make. Utilities are now scaled to serve electric cars. They can use the business, since efficiency has cut other forms of demand.
Every big car company now claims to be working on electric cars. General Motors advertised an electric version of its Hummer monster car at the Super Bowl. Ford has announced an electric version of its F-150 truck.
But where are their batteries going to come from? Tesla has lined up deals with several big battery makers. It bought Maxwell Technologies for over $200 million last year to stay ahead in the technology.
Musk says batteries are now the “gating factor” for car makers, since you can’t build an electric car without one. The company is planning for a “Battery Day” in April to discuss what it’s doing both to ramp up production and improve battery life. Tesla says its latest battery lets the Model Y SUV travel four miles on a single kilowatt-hour of power, with a maximum range of 315 miles.
It’s Tesla’s lead in battery production and technology that now has it trading like a tech stock, not a manufacturer. Even with its latest run-up, the stock is trading at a lower price-to-sales ratio than in 2015. There’s one more thing. The company’s despised solar power systems may soon come of age. The company deployed 54 megawatts of solar power during the fourth quarter, its best performance in a year.
The whole car industry is now following Tesla. Tesla has the industry’s second-largest market cap, behind only Toyota (NYSE:TM), worth $201 billion on about $287 billion of sales. Toyota is teasing an announcement for the Tokyo Summer Olympics about a solid-state battery. If it can scale production, it could pose a real challenge. If it’s just a demonstration, Tesla’s ceiling is unlimited.
The Bottom Line on Tesla Stock
There is no way I can justify buying Tesla stock here, but I’m cheering the company on anyway.
Tesla has transformed the car business, just as Musk said it would. In the process it has also sunk the oil business. It’s no coincidence that shares in Exxon Mobil (NYSE:XOM) fell below $60 on Feb. 4. If oil loses the car business, it has no floor.
While oil’s death is great in theory, it’s going to be an enormous economic and political disruption. It’s going to shake up the world in ways Tesla shorts can barely imagine, and it has only just begun.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.