Cramer explains Tesla stock surge

On Monday, Jim Cramer gave ten reasons why he thinks Tesla Motors' stock has nearly quintupled since the beginning of the year, posting a gain of around 396 percent in less than eight months.

The "Mad Money" host argued Tesla's "epic run" began with its May 8 earnings report and conference call. At that time, Tesla's stock broke out from $55 to $88 a share in just a few days.

So what happened?

1. Tesla defied Wall Street's expectations for a loss and actually reported a $15 million profit, Cramer said.

2. While some market observers thought Tesla had little to no customers, the automaker said it actually exceeded its own production targets to meet increased demand. Tesla had to produce 500 more cars that quarter on top of the 5,000 they'd initially planned to build, and they now intend to make 21,000 cars this year, Cramer noted.

3. Some market observers said Tesla was spending more on its vehicles, but earning less. As it turned out, though, Tesla said it was spending less and earning more, Cramer said. In turn, gross margins—profits after the cost of sales—improved from 8 to 17 percent, exceeding expectations.

Source: Tesla Motors

Tesla Model S 60

4. Though the Street thought the labor and raw material costs were getting to Tesla, the company actually greatly reduced the amount of time it takes to construct its vehicles and saw material costs fall by 20 percent, Cramer said.

5. Increased demand drove Tesla to expand its 34 stores by nearly 50 percent by end year, Cramer said.

6. Tesla said 25 percent of test drives resulted in a purchase, a number that shocked the Street and instilled confidence that more sales could be on the way, Cramer said.

7. The automaker rolled out financing for its vehicles, which made its product far more accessible to the greater public rather than to the few who could afford its cars outright, Cramer said.

8. Tesla has only sold in the North America market, but CEO Elon Musk said there is demand for its vehicles in Asia and Europe.

9. The company will spend another $200 million to build out its production by using its cash on hand, Cramer said.

10. Management said there's no plans for a stock offering, either, which wasn't welcome news to the many shorts in the stock, Cramer suggested.

So what's the bottom line?

" Tesla's market cap got to $20 billion because there simply wasn't enough stock to go around to handle a brand new profitable growth story with no cash needs and a level of demand that can't be met even as gross margins are going higher," Cramer said. "Put simply, that's too much good for the market to ignore and it's how Tesla nearly quintupled, something virtually any other stock with those same characteristics would most likely do as well."

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