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Thursday’s rally demonstrates the impact of positive news on a company’s stock price. Tesla’s Q3 2024 earnings call and the subsequent rally show how sentiment can quickly shift in the stock market. Short sellers, who had been betting against Tesla stock, were caught off guard by the company’s strong performance and optimistic outlook.
Tesla has had a volatile year in 2024. The stock had been down approximately 14% year-to-date leading up to the earnings announcement. Investors and analysts were expecting underwhelming results, but Tesla exceeded expectations across the board. The company’s market capitalization increased by a staggering $150 billion in just one day, making it one of the largest single-day rallies in Tesla’s history.
Elon Musk’s comments during the earnings call were particularly well-received by investors. Musk hinted at a potential 30% increase in vehicle sales for the upcoming year, a statement that helped boost confidence in Tesla’s growth prospects. Steve Sosnick, chief strategist at Interactive Brokers, pointed out that the market was willing to trust Musk’s projections, leading to the massive surge in Tesla’s stock price.
Short sellers, who had been betting against Tesla’s success, were caught in the crossfire of Thursday’s rally. According to S3 Partners, Tesla shorts lost a collective $3.5 billion in just one day. This wiped out the $1.7 billion profit that short sellers had accumulated year-to-date, leaving them down $1.8 billion for the year. Tesla’s rally was a painful reminder of the risks associated with short selling, as losses can pile up quickly when a stock’s price rises unexpectedly.
Analysts were also surprised by Tesla’s Q3 results. On average, analysts had expected a 10% decrease in Tesla’s quarterly profits, but the company reported a nine percent increase in revenue compared to the previous year. Tesla’s automotive gross margin, which excludes regulatory credits, also exceeded expectations. The strong financial performance and promising outlook provided a much-needed boost to Tesla’s stock price.
The rapid reversal of fortune for short sellers serves as a cautionary tale for investors who bet against high-flying stocks like Tesla. Even with the best research and analysis, unexpected events can quickly change the trajectory of a stock’s price. Tesla’s rally on Thursday was a stark reminder of the risks of short selling in a volatile market.
In conclusion, Tesla’s Q3 2024 earnings announcement and subsequent rally showcased the power of positive news in the stock market. The company’s strong financial performance and optimistic outlook caught short sellers off guard, leading to significant losses for those who had bet against Tesla’s success. The rally also surprised analysts, who had underestimated Tesla’s ability to deliver strong results. While Tesla’s stock may continue to be volatile, Thursday’s rally highlighted the potential rewards and risks of investing in high-growth companies like Tesla.
