The novel coronavirus has not been kind to automotive stocks. Car makers have been hit hard, with dealerships shuttered, plants idled and consumers looking for relief from payments. The exception is Tesla (NASDAQ:TSLA). Despite the havoc being wreaked in the global economy — and gas prices at a four-year low — TSLA stock has posted 73% growth so far in 2020.
That includes a 14% pop on Monday. And yesterday it approached double-digit growth once more.
What is going on with TSLA stock? Why is it continuing to grow at such a clip, and what triggered Monday’s big gain?
TSLA Stock Is Moving Against the Current
Monday was another tough day for automakers. All the big manufacturers saw their stocks slide as the the coronavirus lockdown continues. Ford (NYSE:F) was down 3.9%. General Motors (NYSE:GM) closed down 4.3%. Even Toyota (NYSE:TM) closed down 1.7%.
Tesla, on the other hand, saw its stock pop by nearly 14%.
We all know why the traditional auto makers are seeing their shares slump. First-quarter car sales were down before the coronavirus hit, and in March U.S. sales of new cars and trucks plummeted by 40% to 50%. With dealerships closed, massive unemployment and economic uncertainty ahead, Q2 auto sales could be even worse. And to move any cars off lots, auto makers have had to resort to discounts and payment relief for buyers — measures that will cut into profitability.
So why did TSLA stock go the opposite direction on Monday? There were several factors at play. The first is that with Tesla’s Q1 earnings due on April 29, short-sellers are rushing to cover their bets. The second is a series of analyst upgrades on Tesla, including nods from Oppenheimer and Credit Suisse (subscription required).
Why the Tesla Positivity?
The coronavirus has hammered the stocks of traditional automakers. Ford — which recently saw its stock downgraded to junk status — has seen its stock value drop by 47% in 2020. GM has lost 43%. Tesla has gone the opposite direction. Yes, TSLA took a big hit during the worst of the market selloff, but it has rebounded. By close on Monday, Tesla stock had gained 73% in 2020, despite the beating it took through late February and early March.
While low gas prices would seem to favor traditional cars and trucks over electric vehicles, there is an expectation that the current prices won’t last. An oil price war and low demand have combined to bring gas prices to four-year lows, but OPEC+ has agreed to cut oil production. And when the coronavirus lockdown is eased, demand for gasoline will rise to normal levels.
So the low gas prices are a very temporary advantage for traditional cars. And it comes at a time when dealerships are closed and consumers are cautious about spending.
Tesla has already been operating with an online sales model. It’s essentially business as usual for the electric car maker. In addition, Tesla sells premium vehicles. The company’s customers tend to be affluent, making them less likely to hold off on a purchase. And with coronavirus restrictions easing in China, Tesla has been able to ramp up production at its Shanghai Gigafactory.
Bottom Line on TSLA Stock
Despite its stellar performance during the coronavirus pandemic, TSLA stock remains a risky bet — especially as a long-term holding. Traditional auto makers are increasingly pivoting to offer electric cars. Electric pickup trucks are coming soon as well.
That’s going to bring competition at a level that Tesla has never had to face, although with the current situation that day of reckoning has likely been pushed out to 2021.
Despite the recent upgrades, investment analysts that recommend buying Tesla stock are relatively rare. In fact, it’s more likely you’ll find one who recommends unloading your TSLA shares while they’re still trading at these levels. The majority have TSLA rated as a hold (with a $500 median 12-month price target), and are sitting it out to see how things play out through 2020.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
