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Analysts are running to keep up with Wall Street’s biggest juggernaut

Tesla shares surged 13% today after rising 19% yesterday. They are up 3.8 times since their low last May, have more than doubled this year, and are already up 36% this month. Tesla’s $170 billion market cap is almost GM’s, Ford’s and VW’s combined.

Except that Tesla produced 367,500 vehicles last year, while VW alone sold about 11 million. For analysts, this is whiplash just a year after much of Wall Street seemed certain the company was on a death march, led by a string of public foibles by CEO Elon Musk, who himself forecast bankruptcy right about now, short of transformational changes.

Analysts have been scrambling to keep up with Tesla’s run. Yesterday, Argus raised its target price to $808 a share, the highest on Wall Street; only a month ago, Argus had raised its target to $556. Last Friday, another bull — ARK Invest — put a whopping $7,000 target on Tesla shares by 2024.

A couple of analysts are coming right out with what many probably want to say: “This is a LIQUIDITY BUBBLE thanks to ‘funny money’ from central banks,” tweeted Jesse Colombo, who comments on the economy at Zero Hedge. In a tweet, Citron Research called Tesla “the new Wall St. Casino.” “Even Elon would short the stock here if he was a fund manager,” Citron said.

Tesla did not respond to an email asking whether the shares are in a bubble.

The reasonable outlook is that it’s both possible for Tesla to be an electric car juggernaut, as we reported last month, and for its shares to be in a massive bubble. Dan Ives, an analyst at Wedbush who is neutral on Tesla, told me in an email exchange that he expects Tesla shares eventually to plunge to $710. Before that, however, he is looking for the bull run to take them over $1,000. They closed at $887.06 today.

In a note to clients today, Ives said Tesla’s outlook had fundamentally changed over the last week. He cited three factors: the debut of Tesla production in China; the potential for a surge in production to 1 million vehicles over the coming two years, resulting in much higher profit; and bullish remarks from Panasonic, which produces Tesla’s batteries.

“The word that comes to mind is: mind-blowing rally,” Ives responded when I asked how he would describe what is going on. “Historic short covering.”

Ives was referring to the enormous overhang of Tesla shorts — about 25% of its outstanding shares are shorted — and the misery they have suffered the past several weeks as they have had to scoop up shares at high prices to make good on their bets. Yesterday alone, short-sellers lost $2.5 billion on these purchases, according to MarketWatch. Given the bull run, even more shorts may feel they need to buy shares now to avoid even worse bloodletting on their bets.

Morgan Stanley’s Adam Jonas has swung from Wall Street’s biggest Tesla bull to one of its greatest grumps. He has a $360 price target on Tesla, with an underweight rating. When I emailed him today asking whether the company is in a bubble, a spokesperson responded, “We’re going to pass on this one.”

But in a note to clients, Jonas said that to justify today’s share price, Tesla would have to sell 3 million to 4 million vehicles a year by 2030, or around 10 times last year’s production of 367,500. Bulls do clearly think that is possible. Another factor driving Tesla’s bull run, Jonas wrote, is a belief that the company may launch its own, lucrative, stand-alone battery business serving other automakers. Tesla is heavily invested in battery research, since batteries are the most expensive component of its vehicles, and one of the biggest differentiators with rivals.

Jani Ziedins, a writer at Cracked.Market, wrote yesterday that it will all end in tears. He noted a string of Tesla bull runs, followed by precipitous price dips. In 2010, he said, Tesla shares plunged by 53% after a steep rise. In 2013, the hit was 38%, and in 2015 it was 50%. From the 2017 peak to the 2019 trough, the plummet was 52%.

Ziedins wrote, “Owning a stock that’s tripled over the last few months is great, but don’t mistake serendipity for skill. Remember, if we are in this to make money, the only way we do that is by selling our favorite stocks. While the fools are spending all of their time daydreaming about what they will buy when the stock breaks $1,200, smart money is selling their stock to those greedy dreamers.”