Shares of Tesla Inc (NASDAQ:TSLA) are bucking the market's downward trend today and popping after short-seller Andrew Left moved long on the electric-car maker’s stock ahead of its quarterly results Wednesday.
"Citron is long Tesla as the Model 3 is a proven hit and many of the TSLA warning signs have proven not to be significant,” wrote analysts from Citron Research, which Left founded.
“What has changed?? Plain and simple—Tesla is destroying the competition,” they added.
In response to Left’s bullish position, investors sent Tesla shares up 12.7% to $294.14 by the close on Tuesday.
In an exclusive interview with Proactive Investors on Tuesday, Left said he stood by his comments.
"Going into the quarter, with Musk moving up on earnings and short interest, being where it is created an asymmetrical risk/reward as the company seems to be firing on all cylinders."
While the media has focused on CEO Elon Musk’s eccentric and outlandish behavior, it has failed to notice the legitimate disruption of the auto industry that is currently being dominated by Tesla, according to Left.
Tesla’s Model 3 is dominating its class when compared against other mid-sized luxury cars and the Model S is outselling Lexus LS, BMW7 Series cars and Mercedes S-Class vehicles in the large luxury car market, according to Citron.
“Lastly, and this now seems obvious, but Tesla appears to be the only company that can actually produce and sell electric cars,” wrote Left and his team at Citron. “[We’re] seeing that demand is new this year and pulling directly from [Tesla’s} competitors.”
Lawsuit stays on track
Left confirmed in the report that he is still suing Tesla and its CEO Elon Musk for alleged violations of US securities law.
“Yes, we are still suing Musk and Tesla and this recent report has no bearing on the current lawsuit,” according to the Citron report.
The lawsuit from Left charges that Musk manipulated the price of Tesla shares by writing false tweets in a bid to “burn” the company’s short-sellers.
The suit zeroes in on Musk’s tweet from August 7, 2018, in which he said he was considering taking Tesla private and had secured funding for the endeavor.
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
Left claims that a number of short-sellers were forced to cover their positions in the wake of Musk’s tweets about taking Tesla private at US$420 per share, which pushed up the electric-car maker’s share price.
Baird bullish ahead of earnings
In a separate note out today, Baird analyst Ben Kallo argues that if Tesla reports positive cash flow tomorrow, that would be sufficient to drive its shares higher. “The focus will primarily be on cash generation, in our opinion, given concerns over upcoming capital needs,” Kallo wrote.
Kallo projects that Tesla’s management may also provide additional details on the car maker’s potential to increase production over the next year, which would also be looked at favorably by investors. “We think Tesla could provide an update on the Model 3 production ramp, including a pathway to squeeze out more production over the next year,” Kallo said.
The announcement about a new chairman to replace Musk who must forfeit the position for a period of three years as part of the recent SEC settlement, and the appointment of two new independent directors, is the “next focus” for Tesla as well.
Keeping an Outperform rating and a $411 price target on the stock, Kallo concludes that the narrative around the stock could change as the “company achieves positive earnings and cash flow on a sustainable basis.”
“While some think it will take several quarters of execution to transform the narrative, we believe a strong Q3 and favorable outlook on the conference call should be sufficient to drive shares higher,” Kallo concludes.
Contact Ellen Kelleher at [email protected]
-- Katie Lewis in Vancouver contributed to this report --