Tesla stock rally a 'short covering for the ages,' analyst says

Tesla’s stock (TSLA) has gone bananas since its early January lows, and pros say it all makes sense.

The EV maker’s stock has exploded 100% to $210 from its Jan. 3 nadir on Thursday. At this point, the gains appear to be feeding themselves in the latest FOMO (fear of missing out) Tesla stock rally.

“The demand outlook for 2023 has surpassed even the bull case scenario and caused a short covering for the ages,” Wedbush tech analyst Dan Ives told Yahoo Finance via email.

The short-covering rally appears to have been set in motion by Tesla’s recent price cuts.

In early January, Tesla cut the price of the Model 3 base version by $3,000 to $43,990. The Model 3 Performance variant saw a price cut of $9,000 to $53,990.

Tesla also dropped the price for the Model Y Long Range by $13,000 to $52,990 while the Performance model was cut to $56,990, about $13,000 cheaper than the prior price.

The price cuts have led to renewed demand (and perhaps market share gains) for Tesla, as CEO Elon Musk hinted at in the company’s latest earnings call.

“The price cuts have been a genius move by Musk and are paying massive dividends in the field,” Ives said.

CEO of Tesla Motors Elon Musk speaks at the Tesla Giga Texas manufacturing “Cyber Rodeo” grand opening party in Austin, Texas, on April 7, 2022. (Photo by SUZANNE CORDEIRO/AFP via Getty Images)

Longtime Tesla bull and Ark Invest founder Cathie Wood told Yahoo Finance she believes the price cuts stem from Tesla’s cost leadership position in battery technology. With that leadership position in place, Tesla could continue to bring down prices and stoke even more demand.

Or at least that’s one thesis that may be underpinning the latest surge in the stock.

“I think traditional auto manufacturers are going to have trouble keeping up with the price declines that Tesla’s technology is enabling,” Wood said on Yahoo Finance Live (video above).

To be sure, not everyone on Wall Street shares the bullish optimism on Tesla, even while the stock rips higher.

Some pros think price cuts will prove to be damaging to the Tesla brand over the long term while hurting profit margins at the same time.

“Based on the statement that [Elon Musk] made on the fourth quarter earnings call, saying that his demand is 2x his supply, you’d be silly to cut price,” BofA analyst John Murphy told Yahoo Finance Live. “You would just be eating into your profitability and not achieving any more incremental volume in the near term.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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