Tesla (TSLA) stock jumps to $900 as short squeeze seems to be in full effect

After one of its biggest single-day jump in months, Tesla’s (TSLA) stock jumped again in pre-market trading this morning to $900 a share as a massive short squeeze seems to be in full effect.

For a long time now, Tesla’s stock was one of the most shorted stocks on the NASDAQ, which means that people were betting against the company in order to benefit if the price goes down.

An entire community of people was created around these short-sellers who would often share negative news about Tesla and blew it out of proportion.

Those people have been having a hard time lately as Tesla’s stock is on a rally that seems to be intensifying lately.

Tesla’s stock surged late last year and this year, it is jumping faster than anyone could have predicted.

Yesterday, Tesla (TSLA) jumped to a new high over $700 a share with a gain of almost 20% in a single day.

In pre-market trading, the automaker continued its gain on the public market with the stock trading over $900 a share in pre-market trading:

Normally, Tesla only jumps by that much on good news or great earnings report, but it’s not clear what’s driving the stock price surge at first glance.

The broader market is recovering from a slump following the spread of the coronavirus, but Tesla is outpacing the market several times over.

Another explanation is a short squeeze, which means that the short sellers with positions on Tesla are rushing to cover their positions – creating additional demand for Tesla’s shares.

Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3 Partners and short interest expert, says that Tesla short sellers had paper losses of about $2.5 billion yesterday.

The analysts say that the shorts are covering their positions, but he believes that they anticipate a short-term pullback:

“While we are seeing some momentum short sellers increasing their positions in anticipation of a short-term pullback, we should see an increase of short-covering due to this $700/share level squeeze,”

On social media, where Tesla shorts created the $TSLAQ community, several short sellers admitted to giving up on shorting Tesla stock this week due to this new rally.

On the other end of the spectrum, Tesla investors are pretty happy with the rally, like long-term investor Ron Baron:

"Whether @ElonMusk is successful or not I am really glad that I have invested in this company because I'm helping–this guy is saving the earth," says legendary investor Ron Baron. "Brilliant guy, great businessman, and saving the planet." $TSLA pic.twitter.com/S9I1DjM6Ys

— Squawk Box (@SquawkCNBC) February 4, 2020

Electrek’s Take

This is getting into nutty territory. Tesla’s valuation is now rapidly approaching Toyota.

I think it might be a little too fast, but at the same time, I’ve been talking to some of those automakers lately and I don’t see the sense of urgency in them that I think they should have with the electrification of the industry.

I am not one of those Tesla fans that think the company could get away with the lion’s share of the industry, but the more I talk to the rest of the industry, I see Tesla getting a significant part of the pie, which could justify such a valuation.

And that’s before accounting for Tesla’s other businesses like solar and energy storage.

What do you think? Let us know in the comment section below.

Disclosure: I am long TSLA.