Tesla's surge inspires fans to buy, skeptics to dig in, drives fear of missing out

NEW YORK (Reuters) – Pretty much everyone on Wall Street has an opinion about Tesla (TSLA.O).

The electric vehicle maker’s stupendous rally in recent months has given shareholders something to cheer about, cost short sellers billions of dollars and vindicated legions of retail investors who have long adored Elon Musk’s company.

Tesla shares have soared by nearly 320% since early June, helped by the company’s better-than-expected financial results and ramped-up production at its new car factory in Shanghai.

After surging 36% over Monday and Tuesday, the stock by Friday had settled back to a gain of about 15% for the week. On Friday afternoon, it was down marginally at $747.11.

Another factor driving this week’s surge may be fund managers hurrying to raise their allocation of the stock, analysts said.

“A lot of advisors and institutions, they jump in the bandwagon because they don’t want to trail,” said vocal Tesla bull Ross Gerber, president and chief executive of Gerber Kawasaki in Santa Monica, California. “If Tesla goes to $1,000 and they don’t own it, what are they going to tell their clients?”

Gerber trimmed his fund’s position in the stock as the company’s valuation soared. He hopes to buy more if the stock falls and said a fair valuation would be around $550.

THE BULLS

Retail investors have driven part of the surge.

Among Fidelity Investments customers, Tesla has been by far the most actively traded stock in recent sessions, with nearly 16,000 buy orders for the electric carmaker’s shares. Twitter, ranked second overall in trading activity on Fidelity, had just over 2,000 buy orders.

On Monday, when Tesla shot up 20% in its biggest one day rally since 2013, clients at TD Ameritrade – millennials in particular – overwhelmingly took profits after having bought the stock for months, said JJ Kinahan, chief market strategist at the online brokerage.

Tesla’s biggest institutional shareholders are Baillie Gifford, Capital World and Vanguard, according to Refinitiv data.

It also has an international following. Retail investors in South Korea have been trading Tesla shares at a furious pace in recent weeks, buying and selling $200 million worth of stock in January, according to the Korea Securities Depository. Volume in November stood at $43 million.

Tesla options positioning is also bullish. According to data from options analytics provider Trade Alert, skew turned deeply negative this week, meaning that demand for calls, used to position for further share gains, has surpassed demand for puts, used to guard against a fall in shares.

That’s a departure from the usual dynamic in most stocks, in which options used for downside protection generally command prices higher than those for upside participation.

(Graphic: Investors rev up Tesla volatility bets – here)

Tesla’s biggest winner is Musk, who stands to earn more than $1 billion thanks to Tesla’s recent rally. The company’s market capitalization briefly exceeded $150 billion this week, the second target in his record-breaking compensation package that opens the way to options awarded to him vesting.

(Graphic: Elon’s big payout – here)

THE BEARS

Many investors remain skeptical that Tesla can consistently deliver profit, cash flow and growth. More Wall Street analysts rate Tesla “sell” than “buy,” and the company’s stock is the most shorted on Wall Street, with nearly $18 billion sold short.

Those bearish investors plan to profit by selling borrowed shares and buying them back later at a lower price. Yet while short investors in Tesla have suffered paper losses of over $11 billion so far in 2020, they have mostly held their ground, according to S3 Partners, a financial analytics firm.

One seller in the December quarter was Saudi Arabia’s public investment fund, according to a filing on Tuesday.

Some funds that reportedly hold short positions are London-based Crispin Odey, according to the Financial Times. Odey was not immediately available for comment.

The Financial Times also reported that Greenlight Capital, run by David Einhorn, had told investors last month it held a put option against Tesla, which would be a bet against the stock. A spokesman for Greenlight declined to comment.