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Aside from the debate about Tesla‘s business itself and how big it can really become in the future, there are some investor-behavior and mechanical-market factors to consider in trying to figure out its vertical rise.
- Yes, there’s an entrenched short base that’s getting torched, but this doesn’t explain the velocity or magnitude of this move. For most of its history, the short interest as a percentage of Tesla’s float has been higher than it is now. This adds fuel, but it is not the main thing.
Tesla Inc CEO Elon Musk dances onstage during a delivery event for Tesla China-made Model 3 cars in Shanghai, China January 7, 2020.
Aly Song | Reuters
- There’s over-eager retail flow, for sure. There’s been a huge rush of new investors buying over $700 via Robinhood in the past day. On Monday, 12,000 Robinhood accounts bought it for the first time. It’s a one-stock mania. Electronic trading systems love to interact with this retail flow. Dollar trading volume in ‘TSLA’ on Monday was a record for an individual stock, like triple what Apple traded and Tesla is 10% the size.
- Unmoving, long-term true believer shareholders effectively withhold their shares and restrain supply: Baillie Gifford, Musk, Baron, Ark Investment Management. Incidentally, why would Ron Baron sell a share? It’s driving his 30-stock concentrated fund, which charges a nice fee to investors.
- There’s a huge, aggregate “dump fossil fuels, buy post-petroleum energy” trade in the market. Not an actual long/short position, but essentially the market has turned decisively in this direction (doesn’t mean it’s right) and Tesla is just about the only big available stock on the alt energy side.
- The start of this Tesla surge has been curiously timed with the Saudi Aramco IPO in early December.
- Tesla is by far the largest market-cap U.S. stock outside the S&P 500, so managers looking to differentiate from the benchmark are incentivized to ride the momentum.
- These manias happen with leading companies in an area everyone is 100% sure will be huge. See Qualcomm’s move in 1999 to 2000. Cell-phone chips were indeed the future, but Qualcomm’s stock got a bit ahead of the long-term opportunity. This is not a prediction for TSLA, but for what it’s worth:
(Source: FactSet)
