Shares of Tesla Inc. (TSLA) are flying higher Monday, up 5% in midday trading to roughly $291.
What's got investors so excited?
Well, the estimated time for delivery of the Model 3 has been lowered, suggesting that production is going better than expected. It also helps that Tesla recently announced the all-new $78,000 all-wheel drive Model 3.
Oh, and then there's that one analyst who came out on Monday with a $500 price target. That really helped get the bulls excited.
Berenberg analyst Alexander Haissl reiterated his buy rating and says that Tesla's margin outlook on the Model 3 "is not hope, but reality." To be fair, the analyst was already pretty bullish, sporting a $470 price target before raising it on Monday.
But his recent observations must have given him even more confidence in the company's potential.
If Tesla can bottom this quarter, it may very well see a run-up in its stock price. On the company's quarterly conference call earlier this month, CEO Elon Musk reiterated his desire to not raise capital and said he still plans on Tesla being profitable (on a GAAP basis) and cash flow positive in the third and fourth quarter.
So even if the second quarter is not-so-great, bulls could justify running the stock higher if the prospects for the third and fourth quarters are particularly bright.
Still, does that warrant a run to $500 per share, a gain of more than 70% even after Monday's strong rally?
Haissl is arguing that Tesla's target for 25% gross margins is realistic and that once its production hangups and quality issues are taken care of, the Model 3 should be driving profits to Tesla's bottom line. Eventually, production of the Model 3 will be done with tremendous efficiency, he argues.
While Haissl may have built his case around the vehicle's gross margin, another move is what would likely fuel a run in Tesla stock: A short squeeze.
TheStreet contributor Jonas Elmerraji made a case for why Tesla's long-term trends were still intact. He also pointed out that Tesla is one of the highest shorted stocks in the market right now.
Should shares start trending higher -- be it on bullish production news of the Model 3, better margins, improved demand, you name it -- then it could get a squeeze going in Tesla stock. If there's risk to the upside, a short squeeze seems like a more reasonable candidate as the fuel vs. a 25% gross margin run rate.
The reason being is simple: 25% isn't exactly around the corner. Perhaps an improvement in gross margin, production speed and cash flow will be the spark for bulls, but an ensuing short squeeze is what would really be needed to take Tesla stock significantly higher.
To $500 though? That seems like a stretch at this point, especially given that Tesla already sports a $49 billion market cap.