The Reasons For Tesla's Latest Surge: Is It The Time For New All-Time Highs?

In October, Tesla Inc. TSLA set a record with the largest dollar value increase in market capitalization, in the shortest period of time, in stock market history.

The stock price soared from $800 to over $1,200 a share. As a result, the company joined Alphabet Inc. GOOG, Amazon.com Inc. AMZN, Apple Inc. AAPL, and Microsoft MSFT in the elite group of companies with a market cap of over $1 trillion.

Being an investor in Tesla stock certainly is breathtaking. Since the first of the year, Tesla has:

• Gone up from $700 to over $900 a share
• Fallen nearly halfway back toward zero within 5 weeks, finding support around $550
• Climbed back up to the all-time highs at $900.40 in 7 months
• Taken a moonshot to the new all-time-high of $1,243.49 in just 9 trading days.

The Reasons for the Tesla Run Up

What triggered Tesla's massive run-up? Primarily, two things: Earnings and Hertz.

Tesla's 3rd quarter earnings report, released on October 20th, blew away analyst expectations. Its adjusted earnings per share (EPS) shot up nearly 150% year over year, notching a record-high $1.86 (the average analyst estimate was $1.57).

In addition, year over year revenue increased more than 50%, bringing in a cool $13.76 billion. Add to that a hefty jump in operating profit margin, from 9.2% to 14.6%, a figure the company's 3rd quarter letter to shareholders stated it expects to improve.

Just days later, Tesla landed a deal to sell 100,000 electric vehicles to rental car giant Hertz. The projected revenue for Tesla from the deal is approximately $4.2 billion. That shot the company's stock above $1,000 a share, with a single trading day increase of 13%.

A key point regarding the deal is that Hertz wasn't in a position to negotiate the kind of discounts that rental car companies are used to getting, thanks to the fact that Tesla is essentially the only possible U.S. source of 100,000 EVs in short order.

I addition, there was "minor" news like Tesla's lithium partnership venture with Ganfeng Lithium. This will enable Tesla to increase battery production in the critical China market and a move in the Netherlands to open up non-Tesla electric vehicles to use (i.e., buy) Tesla superchargers.

Tesla Stock – Understanding What's Ahead

If you're considering buying or selling shares of Tesla, it's critical to understand that Tesla's stock price is almost entirely driven by expectations of phenomenal growth. It is rather related to the company's current fair market value, which would probably have the stock trading closer to $600.

Tesla is projecting 50% or better annual growth for the foreseeable future. That could put Tesla's yearly revenues close to $500 billion within a decade. It's that kind of growth projection that has some investors thinking Tesla is still a bargain at over $1,000 a share. They may be right.

Tesla continually raised its forecast every year, and the stock continues to outperform projections.

However, in the near term, it's reasonable to expect that Tesla stock might back and fill a bit – very possibly filling the sizeable gap it left in jumping over the $900 price resistance level.

The stock is currently below VWAP but far above its 200-day moving average. Moreover, Tesla analysts and insiders appear to believe the current run up may have peaked, as they've been selling millions of shares.

Tesla – The Bottom Line

Tesla still faces problems, such as a National Transportation Safety Board (NTSB) investigation, problems with its self-driving software, and increasing competition like the one from Rivian Automotive Inc. RIVN. But the bottom line on Tesla is that it is the innovative leader in the still very young EV market, and it has ultimately confounded its doubters at every turn. Tesla stock has been shorted big and often but rarely profitably.

Alexander Voigt is the Chief Executive Officer and founder of daytradingz.com. He does not hold any positions in the mentioned stocks.