Tesla enjoys the rate cutting cycle…

I can’t take credit for spotting this as TrendSpider on X shared it. So they should get all credit! I did want to expand on it though.

Many investors would have made the argument that low interest rates were great for a car companies and they all would do well. I understand the theory of this but I always talk about Macro, Fundamentals and then the technicals.

Let’s look at Fords fundamentals at that time, because they didn’t have the same reaction to Covid cuts. They actually lost around 50% of their value. Similar to GM.

Key Drivers Behind the 2019 Sell-Off

1. Disappointing Earnings and Margin Compression.

Ford’s quarterly results through 2019 consistently showed weaker profitability. Several forces contributed:

• Shrinking margins in North America, its most important profit center.

• Rising costs tied to incentives and slower U.S. auto demand.

• Struggles in China, where sales and market share declined sharply.

2. Costly Global Restructuring

Ford launched a multi-year global redesign meant to cut billions in costs, exit unprofitable regions, and revamp its product line-up. Investors reacted negatively for two reasons:

• The restructuring carried more than $3.7B in charges in 2019.

• The timeline for profitability improvements was unclear.

3. Severe Weakness in China

China was Ford’s most problematic international segment:

• Sales fell over 50% from peak levels (2016–2019).

• Dealership health deteriorated, requiring heavy marketing support.

• Vehicles weren’t competitive in key segments.

This raised long-term worries about Ford’s global relevance.

4. Credit Rating Downgrade

In September 2019, Moody’s cut Ford’s credit rating to junk (Ba1).
This raised borrowing costs and signalled deteriorating fundamentals.
Markets reacted immediately because a downgrade affects both equity and debt investors.

5. Concerns About Future Profitability and EV Transition

Investors questioned whether Ford was moving fast enough on electric vehicles and future mobility. Tesla was accelerating, GM had a clearer EV strategy, and Ford appeared slow and capital-constrained.

Uncertainty about the pace of Ford’s transition added downside pressure and other car manufacturers, such as GM, struggled too.

So what made Tesla have such a strong upside move?

1. Profitability Arrived for the First Time

Before 2019, Tesla had never delivered sustained profit. That changed dramatically:

• Model 3 production stabilized after the “production hell” period.

• Margins lifted sharply due to scale.

• Tesla began posting consistent quarterly profits, enabling index inclusion later.

2. Aggressive Revenue and Delivery Growth

Deliveries accelerated every year through the period, validating long-term demand as growth engines spun up. Yes price got VERY elevated but speculation often allows hype to get unreasonable for periods of time.

Key steps

• China gigafactory (“Giga Shanghai”) ramped at record speed.

• Model Y launched and became one of the fastest-scaled vehicles in the industry.

• Global EV adoption, subsidies, and regulatory support increased sharply.

3. S&P 500 Inclusion (December 2020)

This was one of the largest single stock additions ever and Index funds were forced to buy tens of billions in TSLA shares. Hedge funds front-ran the flows and the price started a fever chase as retail sentiment went vertical.

This alone created a massive demand shock.

4. Retail Mania + Options Gamma Squeeze

2020–2021 saw unprecedented retail trading activity.

Mechanisms

1. Retail investors bought weekly call options.

2. Market makers hedged by buying underlying TSLA shares.

3. That hedging lifted the stock, causing more call buying, creating a gamma feedback loop.

5. Expanding Margins + Software Narrative

Tesla’s story shifted from “car company” to “high-margin tech platform.”

Drivers

• Full Self-Driving (FSD) promise boosted expected future margins.

• Software-like recurring revenue expectations (subscriptions, upgrades).

• Over-the-air updates reinforced the tech valuation narrative.

6. Global EV Policy Tailwinds

2019–2021 saw massive regulatory pressure on ICE vehicles.

7. Short Squeeze + Short Interest Collapse

Tesla was one of the most shorted stocks in the world in 2018–2019.

Steps

1. Profitability triggered mass short covering.

2. Short interest fell from >25% to under 5%.

3. Forced buying fuelled the upward runaway move.

Putting It Together

The surge wasn’t just hype. It was a multi-stage chain reaction: Production scale → profits → narrative shift → index inclusion → retail/options squeeze → short squeeze → global EV tailwinds → massive liquidity

What is clear is that as rates normalised in the low areas, this did benefit most car companies, but it is important to understand that fundamentals and the technicals/market dynamics still play an important role in how soon and how high a price can rise.

The implication that Tesla will rise again in the same manner should be countered with the conventional saying that ”this time is different”. I can practically imagine all the eye rolling going on in that statement, but it’s true. Tesla is still a forward facing company and one I’m very bullish on. If timing is right and cuts continue to bring liquidity to the market, the price will rise as that cash seeks high growth homes that instil confidence, and if not, like many other car companies, when rates stabilise they should see appreciation there.

I think the most important factor in this is, what caused the rate cuts. If it’s panic or inflation, it’s probably smart to stay away from a company that would suffer in a recession. Tesla is the outlier here, and Fundamentals did the heavy lifting. Once those recession fears clear up though, buying Ford or GM was probably not a bad shout.