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Elon Musk set to cash in at Tesla as deliveries and shares soar

Edward Helmore

One of the options on a fully loaded Tesla is “ludicrous mode”, a setting offering a 0-60mph acceleration time of 2.8 seconds for drivers who find its “insane mode” too sedate.

To some investors, that’s similar to chief executive Elon Musk’s bonus package: if the electric carmaker’s share price goes above $554.80 – which would value the firm at $100bn, and which it came very close to last week – the mercurial entrepreneur could reap the first $350m instalment of a potential $50bn share-based pay package.

In the event, Tesla didn’t break through the key $100bn valuation last week – its share price was affected by new Chinese GDP figures showing the slowest growth in 29 years and a stock downgrade which together pushed Tesla’s shares below $500. Still, rising demand in Europe and China, coupled with record deliveries, has contributed to a remarkable change of fortune for the world’s leading electric-vehicle maker, which has pushed its shares up nearly 180% since last summer.

Last year, Tesla’s stock sank as low as $179 in the aftermath of Twitter comments by Musk that he planned to take the company private. There were production problems, and regulators forced Musk to relinquish his chairmanship and pay a $20m fine.

But six months later, Tesla was in turnaround. Its stock price more than doubled from October to December, and has climbed another 24% this year to a peak on Wednesday, helped by a surprise third-quarter profit, fourth-quarter delivery numbers that beat expectations, and the first cars rolling off the production line at Tesla’s new “Gigafactory” in Shanghai.

Over the same period, Musk’s 18.9% stake in the company doubled in value to $18.3bn; Oracle founder Larry Ellison made $1.6bn on his holdings; and Tesla’s value neared 27.2 times its earnings, according to Bloomberg. For comparison, General Motors trades at a multiple of 2.6 and Ford at 2.3.

Analysts are nonetheless divided on the company’s future path. On Tuesday, investment bank Jefferies raised its target price on the stock to $600, calling Tesla “the only carmaker engaged in a positive-sum game in EVs amid rising market acceptance”.

The recent rally may be the final tipping point for the mother of all short squeezes

S3 Partners, analysts

Two days later, Morgan Stanley recommended selling Tesla, its first downgrade on the stock in seven years, arguing that sales growth in China was already priced in. “Near-term momentum and sentiment around the stock is admittedly very strong, but we ultimately question the sustainability of the momentum,” said Morgan Stanley’s Adam Jonas.

But others take a diametrically opposed view. Dan Ives of Wedbush Securities told the Observer: “Demand in Europe has helped counter some of the choppiness in the US but China ramping up is the key that we think is worth $100-$150 to the stock.”

The company’s steep rise in value also hasn’t stopped the short sellers, who are betting on the share price taking a dive; Musk has described them as saboteurs who “want the company to die”.

Tesla is reckoned to be the most shorted company on the US stock markets. The value of shares that have now been borrowed by these short sellers – a move necessary to take a short position on a stock – reached $14.5bn last week, according to data analytics firm S3 Partners. Apple, by comparison, which is far larger than Tesla and valued at $1.4tn, has about $14.3bn invested in shorting its stock.

So far, says S3, those Tesla short-sellers have racked up $2.8bn in mark-to-market losses. The analytics firm added: “The recent rally may be the final tipping point for the mother of all short squeezes.”

But the shorts are convinced the business is heading for a crash. In the US, demand for its cars has dropped, particularly in green-focused California. There, the number of new Tesla registrations nearly halved over the last three months of 2019, from 25,402 to 13,584, according to sales data company Dominion Cross-Sell.

Tesla share price

The massive drop follows the ending of a tax credit for Tesla buyers last year which allowed buyers to deduct up to $7,500 from the purchase price. At the same time, competition in the market is increasing, with companies such as the electric pickup maker Rivian, Audi, Mini, Nissan and the big three US carmakers introducing new electric models for 2021.

But in Shanghai recently, Musk danced on stage to celebrate delivering the first Model 3 saloons in China and he spent the new year at the company’s plant in Fremont, California, to mark a record 112,000 cars delivered in the last quarter.

His stake in Tesla is now worth more than $18bn.