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With Tesla's (NASDAQ:TSLA) price at all-time highs, one wonders if the short squeeze is really under way. Since the price rise accelerated in April, and we have to wait for the new short interest report for the first part of April, we can only speculate. But, looking at the recent evidence and significant buying volume, I suspect there is more buying power than just short covering.

I wrote about Tesla two weeks ago. At the time, the stock was consolidating gains made at the beginning of April. The gains follow the positive developments, with the raised guidance for the first quarter, and the "revolutionary" financing option. The company is expected to post a profit in the first quarter, with analyst consensus estimates rising from a $0.17 loss ninety days ago to a $0.03 profit. Estimates kept rising since the last article for the full year and 2014. Substantial revenue growth combined with potential rising profits (or becoming profitable to be more accurate) and positive changes in the analyst consensus estimates put the stock in the second stage of the earnings maturation cycle, which is the most profitable from the shareholder perspective. The share price is also confirming the notion, with a strong breakout above the $40 price level followed by huge volume. The $40 price level served as long-term resistance for the stock.

CEO Elon Musk is battling against dealers in courts, as he wants to sell electric vehicles directly to the public through factory stores. If he can't win at the state level, he will make a federal case. The battles are costly, and although Musk agrees that it would be cheaper to use the franchise system, he doesn't trust the dealers, because a large part of their sales comes from gasoline-powered vehicles. However, Musk would consider a hybrid retail network (a mix of company-owned and dealer-owned stores), when Tesla's volume reaches 1 percent of U.S. new car sales. And according to Musk, that might happen in 2017 or 2018, when Tesla might introduce a lower-priced third generation car.

Group movement

Tesla is the strongest performer in the Major Auto Manufacturers group, with a 48% year-to-date gain. Toyota Motor (NYSE:TM) is a distant second with a 20% gain, and Ford (NYSE:F) and General Motors (NYSE:GM) are nearly flat since the year started, with miniscule 1.5% gains for both stocks. The underperformance of Ford and GM are due to their price consolidating after strong gains in 2012. Half year performance is much better, with Ford up 28% and GM up 15%, and both stocks are up significantly since their summer lows. Toyota is benefiting lately from the substantial devaluation of the Japanese yen.

Along with the auto recovery in the United States, China is a very important market for Ford and General Motors, and Europe remains a week spot. Tesla is yet to expand internationally, and the first deliveries in Europe and Asia are expected in the second half of the year.

Toyota and Tesla are making new highs while Ford and General Motors are currently below their respective highs made at the beginning of the year.

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Source: Stockcharts

Short interest

Short interest declined by 1 million shares at the end of March, but remains very high, with 43.2% of free float being held short. The recent sharp rise in share price might have caused an elevated level of short covering, but we have to wait for a while to get the new data. But there might be real buying power behind the latest rise. In the week the share price finally broke the $40 level, weekly volume was the highest since the company went public. More than 30 million shares changed hands that week. Tesla will report earnings on May 8th, and the report might be a new catalyst for further short covering and accumulation by institutional investors.

Source for data: Nasdaq.com

Conclusion

Everything seems to be going well for Tesla. The company is expected to report a quarterly profit for the first time, sales are rising rapidly, and there is strong demand for the Model S, with 15,000 reservations at the end of 2012. If the company delivers favorable earnings two weeks from now, a short squeeze and further rise in price might be imminent.

Source: Tesla: Beyond Short Covering