The Tesla Rally
As per Elon Musk’s ambitious “master-plan” of providing sustainable solar-powered electric cars for the masses, Tesla strategized to firstly release the Tesla Roadster as a top-end sports car to fetch income for the research and development of its second-generation cars — Model S and Model X, and its third-generation car — Model 3. So, as Tesla moved towards newer models with improved technologies, their vehicles were to be more affordable for the masses and they would be able to cater to the masses.
Going as per the plan, after upgrading and trials at automating their facilities, Tesla received hundreds of thousands of pre-bookings for the Model 3. But, this when Tesla began facing numerous issues. There were issues regarding the assembly line, their automation, their battery manufacturing and they could hardly reach their targets. Despite this, Tesla’s valuation kept rising, with investors hoping that Tesla would stay true to its word. But there were many prominent investors, back in 2017, who thought that the huge debt Tesla was in, the fact that Tesla never showed profits in their annual reports, that it was in the midst of several controversies, that Tesla was burning out its cash and that the company was headed towards bankruptcy, owing to the “production hell” it was facing. As a result of so many factors, they began short selling lots of Tesla shares, estimating the failure of Musk’s master plan.
But this is when Tesla turned the tables by fixing its manufacturing issues, making it an automation sanctum and exceeding its targets and selling a record number of Model 3 units. For the first time, they even showed a tremendous profit in their books. All of this further led to an increase in their valuation as investors' trust in Tesla and their loyalty towards the company increased. At this point, the huge number of short-sellers saw no other option than to buy the Tesla shares at a loss as they realised the prices weren’t going to go down. So they began buying Tesla shares to complete their short call option. As they bought more and more Tesla shares, the Tesla prices soared even higher due to the increase in demand. As the Tesla prices skyrocketed, it became difficult for other Tesla short sellers to hold on to their deals and they, too, ended up selling their shares in a short squeeze, giving further impetus to the increase in Tesla share prices.
Apart from the short-sellers, Elon Musk has also played a prominent role in this Tesla rally through his tweets. Lots of investors react to his tweets to make their investment decisions in several assets like securities (Tesla, GameStop), cryptocurrencies (Bitcoin, Dogecoin), etc.
Another pivotal factor for the Tesla rally was the Reddit community traders, mainly from the r/WallStreetBets forum. A Barclays study even found that the posts on Reddit and the rise in Tesla share prices were positively correlated. These Reddit traders, through the posts and discussion in the forum, amplified the Tesla shares trade. They were also able to generate a FOMO (fear of missing out) amongst their fellow traders as well as new investors, which gave them an impetus to buy more and more Tesla shares. It was the mutual feeling of going against the big players of Wall Street like the investment banks and hedge funds, that allowed for such a rally, led by the Reddit community traders.
The impact of this rally was so huge that it made Elon Musk the richest person on the planet for a while, at $210 Billion. Moreover, Tesla’s market capitalization is almost $300 Billion, more than that of Ford, GM, Honda, Ferrari, BMW, and Volkswagen combined.
