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Why Tesla Shares Soared 44% in October

By Howard Smith – Nov 4, 2021 at 9:30AM

Key Points

  • A large fleet order won't be sold at a discounted price, according to Musk.
  • Competition is coming to market, but for now that is just driving EV investor interest.
  • Tax incentives may be ramping up, and investors don't seem to care if they are geared toward brands other than Tesla.

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The stock took off after news of a large order was reported -- but Elon Musk disputed it.

What happened

The stock of Tesla (TSLA 3.78%) resumed its meteoric rise in late October, and shares have soared more than 33% just since Oct. 22. For the full month of October, Tesla shares gained 43.7%, according to data provided by S&P Global Market Intelligence.

So what

The ramp up in share price effectively started with reports of a large rental fleet order for Tesla's Model 3 sedans, but Elon Musk took to Twitter to dispute that a contract had been signed. While that may seem like negative news, Musk's comments included some details that actually should make Tesla shareholders even more confident in the company's near-term business prospects. 

Stock chart with green bars and arrow indicating rising share price.

Image source: Getty Images.

At the same time, Tesla shares are rising in the face of increasing, and high-profile, competition, and as the federal government discusses adding tax incentives for some electric vehicle (EV) purchases. 

Now what

Rental car company Hertz announced that it was making a "significant investment to offer the largest EV rental fleet in North America and one of the largest in the world." That investment, it said, included 100,000 Teslas that it would purchase by the end of 2022. Shares of both Hertz and Tesla jumped the day of the announcement. After the announcement, Hertz began running television ad campaigns with football star Tom Brady that showcased a parking garage full of Tesla Model 3s. 

But while a large order initially seemed like a boost for Tesla, Elon Musk took to Twitter a few days later and downplayed the Hertz deal in response to a user's post. Musk, in fact, said that no contract had been signed with Hertz for the electric cars. Musk stressed that any fleet sale would be at the same margin that Tesla gets from consumer sales, rather than at discounts like many traditional automakers give rental companies. 

He stressed the company was supply constrained, with demand far outpacing production at this point. That's a good position for a company to be in, and investors kept the stock's rally going. 

Meanwhile, EV start-up Lucid Group recently delivered its first luxury sedans that many think will rival Tesla's dominance. The Air Dream Edition has a battery range of 520 miles on a single charge, far outpacing Tesla's longest range battery. And Amazon-backed Rivian is getting ready to make its debut on the public markets as its electric trucks are being delivered. While competition is ramping up, for now that seems only to be driving more investor interest in the sector. 

In the background of all of that remains the debate over a potential federal spending bill that seeks to motivate the transition to EVs in the U.S. President Joe Biden's Build Back Better plan and the bipartisan infrastructure bill both aim to expand the transition to renewable energy. But the Build Back Better framework may only contain tax incentives for unionized EV manufacturers, which would exclude Tesla. 

That doesn't seem to be dissuading investors from continuing to drive Tesla's stock, though. And any shareholders who held through October found themselves with yet another large monthly gain in Tesla shares.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Howard Smith owns shares of Amazon and Lucid Group, Inc. The Motley Fool owns shares of and recommends Amazon, Tesla, and Twitter. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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