Shares of Tesla Inc. climbed 12.6% on October 25, an increase in market value of about $ 95 billion. For context, Ford Motor Co.’s TOTAL market capitalization is currently around $ 70 billion. Market commentators were pointing to the novelty of Tesla’s value surpassing the combined stock values of Ford and General Motors Co., despite the former struggling to post consistent earnings. What a strange idea. Tesla’s stock now produces one-day price swings as large as those of its competitors. Really great.
To the credit of Technoking of Tesla / CEO Elon Musk and his team, the company achieved significant profitability as of 2020. So why did the stock rise so aggressively on that day? The biggest apparent news came from a press release from Hertz Corp. which announced an initial order for 100,000 Tesla vehicles for the rental company’s fleet through the end of 2022, as well as an investment in electric vehicle charging infrastructure.
Mr Musk appeared perplexed at the course of the share price as he tweeted in response that afternoon: ‘It’s strange that the valuation has changed, because Tesla is really a problem of. production ramp, not a demand problem. He also responded to a tweet on November 1 claiming to thank him for Tesla’s recent stock price gains, saying ‘You’re welcome. While this is all based on Hertz, I would like to point out that no contract has yet been signed. Tesla has a lot more demand than production, so we will only sell cars to Hertz with the same margin as to consumers. The Hertz agreement has no effect on our economy.
Let’s first recognize Mr. Musk’s skillful ability to use the Hertz press release to advance a narrative of the unquenchable demand for the Tesla vehicle with bullish undertones for the profit margin implications while displaying some skepticism about recent stock price action. Hopefully he’s right about the continued demand as the company has a lot of work to do to reach its current valuation.
More importantly, what does it say about the current state of the market that a recently bankrupt company (Hertz) can issue a press release about their lofty intentions, with no contract in hand, and shift the market value? Tesla’s 1.35 Times Ford’s Size In One Day? Hertz stock itself gained over 38% as a result of this “news” until Monday, November 1. Wild.
Just this morning, as I write this column, shares of Hertz’s competitor Avis Budget Group Inc. have climbed to 218% from yesterday’s close. Why? During a call with analysts, CEO Joe Ferraro said: “You will see us in the future being much more active in electrical scenarios as the situation evolves over time.” There is nothing tangible other than an expressed intention to add electric vehicles to the fleet and the company’s market capitalization has more than tripled. Complitly normal.
I would like to have a well-grounded thesis on how investors might think about these weird market machinations. All I can say is if you are a Tesla short seller you are NGMI.
JP Szafranski is CEO of Meliora Capital in Tulsa (www.melcapital.com).
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