Tesla ready for the S&P 500. Will we assist to a 1000% gain in 2020?

(Se stai cercando l'articolo in italiano, per favore clicca qui Tesla pronta per l'S&P 500. Assisteremo a un 1000% di rialzo nel 2020?)

Tesla, the manufacturer of electric cars and renewable energy technologies, has just reported its second quarter results for 2020.

Elon Musk's jewel, according to estimates compiled by Refinitiv, has reported its fourth consecutive quarter of profitability on a GAAP basis, which means it can now be considered for inclusion in the S&P 500 index.

At this time last year, Tesla's shares were trading around 260 dollar per share. Today they closed at over 1,500 dollar per share. This sensetional price increase has made the company the largest car manufacturer in the United States by market capitalization. A dizzying price increase, supported by the better than expected production and delivery numbers of vehicles for the second quarter 2020.

In particular, Tesla appears to have reported profits of 2.18 cents per share versus 3 cents expected. But also revenues of 6.04 billion against the 5.37 billion expected.

While on the one hand we have witnessed to the stellar performance of the stock price, and we will probably see further rises, especially in view of the potential inclusion of Tesla in the S&P 500 index, certain unknowns loom over the future of the company. In particular, doubts about a demand for its vehicles that could turn weak, given the cyclical nature of the auto sector and the deteriorating macroeconomic conditions both in the United States and worldwide.

Another factor to consider and that could weigh on having catastrophic effects on recent investors is the so-called "short squeeze".

The short squeeze, which occurs due to market speculation, is a phenomenon that affects the price of a security on the upside. When a security is sold short, therefore hoping to get a profit from the collapse of that security, if things do not go as hoped, one is forced to close the position, either for the lack of sufficient liquidity to cover the loss, and therefore forced closure by the broker, or for the voluntary decision to limit the loss. Therefore, when the stock crash does not occur and a short selling position is closed, what happens is the purchase of the stock at the market price, therefore a further upward push on the security's price.

The short squeeze is a phenomenon not to be underestimated in the recent performance of Tesla stock. In fact, Tesla is currently the most shorted stock in history, with a total value of shorted stocks around 20 billion dollars. To put this in perspective, just think that yesterday, before the announcement of the results for the second quarter of 2020, Tesla's total capitalization equaled 295 billion dollars, while a year ago it was around 50 billion dollars.

To conclude with our opinion on the title, we cite Warren Buffett's always appropriate dogma "fearful when others are greedy, and greedy when others are fearful.".