By Tim Higgins 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 10, 2020).

Tesla Inc.'s strong performance during the pandemic has sent its stock soaring, dealing a blow to investors betting against the Silicon Valley auto maker. And Chief Executive Elon Musk is having a blast rubbing their noses in it.

The 17-year-old electric-car company's market value has risen almost 25% -- or about $50 billion -- to more than $250 billion in little over a week, and now roughly equals the combined values of Toyota Motor Corp., General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV. Tesla shares hit a record high $1,429.50 during Tuesday trading.

With Tesla shares more than tripling this year, short sellers -- investors who have bet against the stock -- have lost $17.89 billion on paper during the period, according to Ihor Dusaniwsky, head of predictive analytics at S3 Partners. In July, the bearish investors are down more than $4 billion, with shares up 2.1% on Thursday.

A gleeful Mr. Musk has celebrated in recent days by taunting the short sellers, announcing over the weekend the launch of a line of Tesla "short shorts," skimpy red-satin garments that the company said sold out quickly. Tesla's website said the shorts included the company's model names spelling out S-3-X-Y, and Mr. Musk noted they were selling for "only $69.420!!" -- numerical references to both a sexual position and marijuana -- themes Mr. Musk has hit on before on Twitter.

Tesla didn't respond to a request for comment.

The episode is the latest in Mr. Musk's long-running and vitriolic Twitter battle with short sellers who, attracted by Tesla's struggles and Mr. Musk's showmanship, have questioned the fundamentals of the business and demand for electric vehicles.

The recent stock surge has reduced the short sellers' ranks to the hardest core, said Mr. Dusaniwsky. "These losses have squeezed out most of the less rabid short sellers, leaving only those most dogmatic short sellers in the trade," he said Wednesday. Short-seller interest in Tesla has fallen to less than 10% of its stock, compared with more than 20% about a year ago.

Mr. Musk also has mocked the Securities and Exchange Commission, a longtime target of his.

"Will send some to the Shortseller Enrichment Commission to comfort them through these difficult times," he tweeted last week about the shorts, reviving a term he used in 2018 after settling with the SEC over claims that he had misled investors with tweets saying he had secured funding to take the auto maker private.

The latest surge in Tesla's stock puts Mr. Musk closer to unlocking a second giant payday tied to the company's performance, including holding an average market value of $150 billion over six months and 30 days. At Wednesday's closing price, the past six-month average market value was $139 billion. He qualified in May for the first of a 12-part compensation package that, in aggregate, could potentially be worth more than $50 billion through 2028.

The initial payday had a nominal net value of more than $700 million at the time. This second tranche would be worth $1.76 billion at Thursday's closing price of $1,394.28 a share.

Longtime automotive industry analyst David Whiston said Tesla's share-price rise reminds him of the 1990s tech bubble, except that the auto maker is making a product that some people want.

"I just can't justify the valuation even if you want to be very optimistic on their deliveries rising," said Mr. Whiston, an analyst for Morningstar Research Services.

Analysts now have revised their financial forecasts for the second quarter, due July 22. Those surveyed by FactSet, on average, estimated on July 7 that Tesla would lose $294 million in the period, an improvement from late May, when they predicted a $387 million loss.

Some analysts, including Brian Johnson at Barclays, think Tesla might eke out another surprise profit. Mr. Johnson estimates a possible $42 million profit helped by the sale of $300 million in regulatory tax credits. Doing so would make Tesla eligible for consideration to be included in the S&P 500 index.

By the end of December, analysts predict Tesla will turn a $258 million full-year profit -- its first -- on delivery of 435,000 vehicles, short of the more than 500,000 deliveries that Mr. Musk targeted before the pandemic.

Mr. Johnson, who sees Tesla as overvalued, cautioned bearish investors that he doesn't see a trigger to cause shares to fall until near the end of the year when it becomes clear what demand for the new Model Y compact sport-utility vehicle might be.

"We see nothing to prevent the shares moving higher in the coming weeks and urge our bearish friends...to remain in the shelter of their caves," he wrote.

The momentum around Tesla shares has swung drastically in the past. A little more than a year ago, the bets that Mr. Musk's opponents placed looked correct. Tesla's deliveries slowed early in 2019 as it struggled to export the Model 3 compact car and cash dwindled. The stock fell to close at a low of $178.97 a share on June 3, 2019.

Tesla shares began to surge when deliveries improved in the second half, took a step back as the pandemic hit and reignited in April when the company surprised Wall Street by posting a first-quarter profit.

As excitement built ahead of the second-quarter delivery results released on July 2, Tesla overtook Toyota last month as the world's most valuable auto maker, when excluding the Japanese company's sizable pool of treasury shares. The 82-year-old auto maker, which had a $19 billion profit in the past fiscal year, is worth $176 billion, not including the shares.

Tesla ended the second quarter delivering 90,650 vehicles, down 4.9% from a year earlier, when Wall Street was braced for a 24% drop.

Write to Tim Higgins at Tim.Higgins@WSJ.com

 

(END) Dow Jones Newswires

July 10, 2020 02:47 ET (06:47 GMT)

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