Tesla stock soars 22% in historic rally

Representative Image (Courtesy: Tesla)

Tesla’s stock achieved a remarkable milestone Thursday, surging nearly 22% in its most significant single-day rally since May 2013, as investors responded enthusiastically to CEO Elon Musk’s bold vision for the company’s future. The dramatic upturn added approximately USD 150 billion to the electric vehicle maker’s market capitalization and effectively erased recent losses that had stemmed from concerns about Musk’s divided attention.

During the company’s earnings call, Musk projected ambitious sales growth of 20-30% for the coming year and announced plans to launch a more affordable electric vehicle in the first half of 2025. These announcements, coupled with improved production efficiency metrics, sparked renewed confidence among investors who had previously expressed concerns about the company’s direction.

The stock reached an intraday high of USD 262.2, with extraordinary trading volume of approximately 200 million shares. Ed Egilinsky, managing director at investment firm Direxion, suggested the dramatic rise might partially reflect a relief rally, noting that “some bears feel this is more of a relief rally, as results were better than feared.” The surge may have been amplified by short covering, with short interest in Tesla stock standing at 2.33% at September’s end, according to LSEG data.

Tesla’s third-quarter performance exceeded expectations, with margins substantially beating Wall Street forecasts. The company reported its lowest-ever cost of goods sold per vehicle at approximately USD 35,100, demonstrating significant improvements in production efficiency. Additionally, Tesla recorded USD 326 million in revenue from its Full Self Driving (FSD) software, highlighting the growing importance of its autonomous driving technology.

Jessica Caldwell, head of insights at Edmunds, observed a shift in Musk’s presentation style, noting, “He definitely seemed more passionate and invested in it this time.” She emphasised the importance of providing concrete details about the company’s path forward, which had been lacking in previous communications.

However, not all investors share the optimistic outlook. Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management and a prominent Tesla investor, expressed concerns about Musk’s focus on robotaxis and AI rather than core business operations. “The days were good when Elon slept at the factory. He was there every day, working. Not going on Trump rallies of all things he could be doing,” Gerber remarked, referencing Musk’s public support for the Republican presidential candidate.

The company’s valuation metrics remain notably high, with shares trading at 72.75 times forward earnings estimates. This premium valuation stands in stark contrast to traditional automaker Ford’s multiple of 5.94 and even exceeds technology giant Microsoft’s 30.79 ratio.

Musk’s announcement that Tesla vehicles could offer paid, driverless ride-hailing services as soon as next year reinforced his commitment to autonomous technology, though industry observers note that such services face significant regulatory hurdles.

The market’s response prompted at least seven brokerage firms to raise their price targets for Tesla stock, with a median target of USD 221, according to LSEG data. This positive analyst sentiment reflects growing confidence in Tesla’s ability to execute its ambitious plans while maintaining profitability.

Seth Goldstein, equity strategist at Morningstar, highlighted the dual drivers of Tesla’s margin expansion: “FSD played a part in the margin expansion, but I think the larger driver was reduced unit production costs… Over time, FSD should drive higher long-term margin expansion.”

WionDrive News Desk: