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What the heck is going on with Tesla’s stock?

Tesla’s stock has doubled in the past month, and nobody is entirely sure why.

Tesla CEO Elon Musk stands beside the new Tesla Model Y at its unveiling in Hawthorne, California, on March 14, 2019.
AFP via Getty Images

Tesla’s stock is currently worth almost $890 a share — more than double what it was just last month. This is not normal. For context, in that same time period the S&P 500, a measure of the stock performance of the country’s most valuable companies, rose just 1 percent.

A high stock price means demand for Tesla stock is high. And not everyone is necessarily happy about that sky-high number, notably the Saudi Arabia Public Investment Fund, which dumped 99.5 percent of its stock in the company late last year.

Tesla’s stock price is also very volatile. It dropped off precipitously toward market close Tuesday after rising to about $955.

The electric car company’s current stock price gives it a market capitalization — a rough proxy for what you could sell the company for — of $160 billion, making it now in league with the value of Salesforce, McDonald’s, Citigroup, and Netflix. That’s also approximately equivalent to the GDP of Algeria.

Those of you with longer memories might remember back in 2018 when Tesla CEO Elon Musk got in hot water for tweeting that he’d take the company private when it reached $420, a price that seemed to many too high at the time. Now it seems low.

What’s going on? Tesla’s high stock price seems to be a confluence of a number of factors, including short selling, a good earnings report, positive press, and mainstream popularity.

1) A very big short squeeze

Tesla is a favorite stock for short sellers, investors who make money by betting the stock price is going to go down. Indeed, it’s the most-shorted US equity. But when these investors realize a stock might continue to rise — say, due to a very good earnings report — they’re forced to close out their position and buy the stock to stop further losses. Added demand from Tesla’s short sellers caused what is called a short squeeze, which drives the price of the stock even higher.

2) A very good earnings report

Tesla’s fourth-quarter earnings report last week beat analysts’ earnings expectations. It’s forward-looking estimates were sunny, too, with the electric car company promising to grow sales by a third this year. A month earlier, the company had announced record vehicle sales and deliveries, which had been a continual worry for shareholders who questioned whether the company could meet its lofty production goals. Altogether, these amount to reasons for shareholders to expect the stock to be worth more in the future.

3) A pleasant surprise with Model Y

Tesla announced last month that it’s going to deliver its crossover SUV, the Model Y, months ahead of schedule. Originally slated for fall 2020, Tesla expects the highly anticipated Model Y to ship next month.

4) A very good TV spot

On Tuesday, major Tesla investor Ron Baron went on TV to say he thought the company could reach $1 trillion in revenue in 10 years. For context, Tesla’s 2019 revenue was $24 billion. Baron, whose investment firm already holds almost 1.63 million Tesla shares, said in the interview that if it were up to him, he’d buy even more.

5) Mainstream popularity attracts inexperienced investors

Remember when everyone and their grandmother was talking about bitcoin at Thanksgiving dinner? That level of widespread popularity for an investment causes serious demand. It’s also a serious warning sign that things are getting too heated. CNBC reported that lots of new investors are buying Tesla stock at its now very high price, with 12,000 accounts on consumer stock trading app Robinhood buying it for the first time yesterday. It’s currently the fastest-growing stock holding on the site.

Correction: The post has been updated to state that Tesla is the fastest-growing stock holding on Robinhood.