Tesla Motors (NASDAQ:TSLA) has had a rocky run since its IPO in July 2010. The first shares of Tesla stock were offered at $17, popped to $19 the first day of trading and soared as high as $35 by November 2010. But since then it has been a wild ride with many plunges and recoveries in TSLA stock, but no momentum sticking for long either way.
Today, the story at least appears to finally have changed for TSLA stock. Strong sales of its flagship electric sedan sales have exceeded expectations, and Tesla expects to show a profit in the first quarter — a huge victory that shows Tesla is a legitimate business and not just a fad.
A Tesla release today notes that “vehicle deliveries (sales) exceeded 4,750 units vs. the 4,500 unit prior outlook. As a result, Tesla is amending its Q1 guidance to full profitability, both GAAP and non-GAAP.”
For those unfamiliar, GAAP means Generally Acccepted Accounting Practices — or fuzzy math that corporations sometimes use to exclude unfavorable items. So Tesla is pointing out that it is not just profitable on paper with accounting tricks, but also in the simple sense of subtracting the top line from the bottom line.
Innovative entrepreneur Elon Musk, co-founder and CEO of Telsa, drives the point home by saying, “There have been many car startups over the past several decades, but profitability is what makes a company real. Tesla is here to stay and keep fighting for the electric car revolution.”
No surprise Tesla stock is soaring by double digits this morning on such favorable news.
The million-dollar question, of course, is whether TSLA stock will continue to be a driver of profits going forward. That might not be as likely.
Consider that before this announcement, some 60% of the float in Tesla stock was sold short — meaning that 6 in 10 of the shares available for trading each day were held by people betting TSLA would drop.
The result has been a classic short squeeze, where traders cover their downside bets by buying the stock, sending share prices soaring.
This does not mean that the news isn’t very favorable for Tesla, or that the stock doesn’t have staying power. But keep in mind that the big momentum today is because of a large number of people betting against TSLA who are now buying frantically to cover their bad trades.
Going forward, there are many reasons to be bullish on autos generally. In early March, I wrote about how General Motors (NYSE:GM) and Ford (NYSE:F) will benefit from a booming high-margin truck business in the next few years.
Toyota (NYSE:TM) and Honda (NYSE:HMC) are a bit battered thanks to pressure from China sales, but there’s reason to be optimistic — especially if posturing in Asia gets more friendly. Consider that U.S. light-vehicle sales hit 14.5 million in 2012 — the highest level since the Great Recession — and that research and consulting firm Polk expects auto sales to hit 15.3 million vehicles in 2013. That’s a nice tailwind.
Throw in the fact that Tesla clearly has power of buzz and brand in the electric vehicle space and that gas prices will at worst remain at current levels, and you have a compelling case for Tesla long-term.
But don’t think that 15% pops are likely to happen again in the coming days. After this short-covering, expect Tesla stock to settle back into a groove.
That groove will be much higher than previously, of course. But unless you were already in on TSLA, you might want to wait for the dust to settle before chasing this high-octane auto stock.
- Full Tesla release on its great sales numbers. (Tesla Motors)
- It’s also worth noting that Tesla canceled its lowest-end Model S with a smaller battery pack. (Wired)
- Elon Musk is bullish on the broader economy, not just Tesla. (USA TODAY)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.