Ahead of Tesla Motors' first-quarter earnings report, short interest in the stock remains among the highest in the market, driven by investors who believe its shares will fall after a spectacular run this year.
In the last month, the stock is up 35 percent and in the last year Tesla has jumped 87 percent.
Bear Case Weakening?
For many betting against Tesla, the last six months have been frustrating. The company's stock moved higher as it met expectations and announced it would finally make a profit in the first quarter.
In the last week, two analysts have raised their price targets above $65 a share, higher than the $56 level that the company was trading near. They say the arguments questioning Tesla's financial position are losing steam.
In raising her price target for Tesla to $68 from $45, Jefferies analyst Elaine Kwei wrote, "A year and a half ago, Tesla was an attractive short candidate: the bear case was built around an unknown product, with unknown demand, from an unknown company (at least in the wider automotive industry). The conclusion was that Tesla would eventually go the way of Fisker Automotive, which is now on the verge of bankruptcy. Instead, over the past year Tesla has hit its production and delivery milestones one by one, knocking out each leg of the bear case."
Despite her logic and the arguments of others who believe in Tesla, short interest has remained high. Skeptics point out Tesla is a long way from showing it can post a profit quarter after quarter. They also point out the Model S is still relatively new, with just more than 6,000 sold so far. As more Model S vehicles hit the street, will the public embrace the car? Can sales grow at a steady clip over the next several years?
Focus on Gross Margins, Reservation Cancellations
Tesla is expected to post a profit of 4 cents a share for the first quarter on revenue of $500 million, according to a consensus estimate from Thomson Reuters. But for many investors the real focus of the earnings report will be the conference call afterward.
Specifically, investors will be looking at Tesla's gross margins and the number of Model S reservation cancellations. In the past, Tesla has targeted gross margins of 25 percent by the fourth quarter. At the end of last year, Tesla's gross margins were 8 percent.
CEO Elon Musk has said he wants the backlog of reservations to decrease slowly. After the earnings report, we'll see if the backlog that stood at just over 15,000 in December has dropped gradually or taken a huge hit. Musk's preference is for a gradual reduction.
—By CNBC's Phil LeBeau. Follow him on Twitter
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