2013 Tesla Model S electric sport sedan [photo by owner David Noland]Enlarge Photo
You may never have heard of a "short squeeze," but Tesla is benefiting greatly from it right now.
The stock of the Silicon Valley startup electric-car maker has soared in recent days after Tesla Motors [NSDQ:TSLA] announced its first-ever profitable quarter and plans to build and sell 21,000 Model S luxury sport sedans this year.
The upward rise on positive news put increasing pressure on "short sellers"--investors who borrow to sell shares they don't own, betting that the price will fall.
The price hasn't fallen, and now those investors are having to buy stock at any price to cover their failed bets.
Taking advantage of the high price, Tesla said yesterday it would issue more stock and pay off its U.S. Department of Energy loans with the cash.
Those low-interest loans have been a bone of contention for, among others, Mitt Romney, the losing Republican candidate in last fall's U.S. presidential election.
Along with Fisker Automotive--for whom the prognosis seems pretty grim--he named Tesla as a "loser" company that the government should never have funded.
Paying off its loans early with interest would remove any taint of direct government financial support for Tesla, though the Federal income-tax credit of $2,500 to $7,500 for purchase of a plug-in car would remain.
Tesla CEO Elon Musk pledged to buy $100 million of Tesla stock when the new offering comes to market. For complex financial reasons, $45 million of that would be through the offering and the rest would be in a private placement.
The company expects to reap about $830 million from the transactions altogether.
Among other good news, Consumer Reports gave the Tesla Model S its highest rating last week--saying it was the best car the consumer magazine had tested since 2007.