As of yesterday, Tesla (TSLA) surpassed VW to become the second highest valued automaker by market cap. As of the time of this writing, it’s worth some $105 billion.
How is this possible?
Unless you live in a cave, you’ve probably heard that Tesla shares have been on a very strong uptrend the past few months, starting with the 2019 Q3 announcement that sales and profits (EBDIT, not net) were up. And since then there’s been one continuous string of news and announcements that keep bolstering this rise: The Model Y is going into production imminently, the Cybertruck was received well and an expert has chimed in saying it will be “incredibly cheap to bring to market“, Tesla’s China plant was built faster than expected and deliveries have begun, Tesla’s China sales are strong generally, Tesla’s bold new factory in Germany is expected to break ground next month or so, and a whole slew of other news.
Of course none of that can objectively support such an insanely high stock price; VW build 30 times as many cars as Tesla. But VW’s CEO Herbert Diess also acknowledges that Tesla’s technology, especially its software and interface, which allows a constant stream of over-the-air updates, such as offering an instant upgrade of a half-second improved 0-60 time for $2,000 really is revolutionizing the industry.
This realization, which some of us have had for a long time, flies against the classic anti-Tesla argument that the automotive industry is all about efficient production and low margins, and that there was no way a brash Silicon Valley upstart was going to have any meaningful impact on that industry. Well, that theory, along with the TSLA short-sellers, is being tested mightily these days.
Speaking of, TSLA shorts have lost some $6 billion in the recent rally, and some $12-13 billion total in the past years. That’s ironic, because these are the very folks who perpetually pointed out that Tesla was burning capital, for no benefit. The shorts’ losses are now not far off from the total amount of capital ever invested in Tesla. That alone is either very sad or very funny, depending.
Undoubtedly a substantial part of this recent rally has been fueled by shorts having to cover their positions, a classic short-squeeze. The current price exceeds the average of Tesla analysts’ guidance, although some range up to $800.
Speaking of Tesla shorts, Tesla says that an acknowledged short is behind the petition to have the NHTSA review claims of Unintended Acceleration (“UA”). Unlike in the past, when Audi and Toyota sequentially took it on the chin regarding claims of UA, Tesla is not going to go that route. And there’s no reason, as they have the “black box” information to prove that every case of UA is really just wrong pedal application; which is of course the case with all UA, except for pedal entrapment by tall floor mats, as was the case with many of the Toyota cases.
Every case has all the classic UA hallmarks: they happen in parking lots or driveways, when folks are maneuvering, or stopping and starting. And in the process, they hit the wrong pedal. It’s just an inevitable collateral damage of cars with automatic transmissions (or none, in the case of Teslas). Tesla has had numerous suits filed before over UA, and has always been able to prove the obvious. From a statement by Tesla:
This petition is completely false and was brought by a Tesla short-seller. We investigate every single incident where the driver alleges to us that their vehicle accelerated contrary to their input, and in every case where we had the vehicle’s data, we confirmed that the car operated as designed. In other words, the car accelerates if, and only if, the driver told it to do so, and it slows or stops when the driver applies the brake.
We are transparent with NHTSA, and routinely review customer complaints of unintended acceleration with them. Over the past several years, we discussed with NHTSA the majority of the complaints alleged in the petition. In every case we reviewed with them, the data proved the vehicle functioned properly.
As to whether Tesla can live up to the very optimistic assumptions built into its stock price remains to be seen. But the once rampant talk about Tesla being a flash-in-the-pan crony-capitalist subsidy-sucking capital-destroying hype-machine company doomed for bankruptcy is getting mighty quiet.