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The Model 3 Is Powering a New Rally in Tesla Stock

Tesla stock is back on the rise thanks to its new Model 3 sedan, which is already a bigger seller than anyone expected.

Tesla Motors (TSLA) unveiled the Model 3, its new “affordable luxury” electric car that’s roughly half the price of its signature Model S, last week. So far, 325,000 Model 3s have been reserved.

According to the company, it’s the “single biggest one-week launch of any product ever,” with $14 billion in implied future sales (the car won’t be ready until next year). To put that in perspective, only one car, the Toyota Camry, sold more units (361,111) in the U.S. in all of 2015!

Needless to say, that’s good news for Tesla stock.

With the early returns in, it appears the Model 3 will be every bit the huge hit the Model S has been. It took a while for Tesla stock to get going after the Model S was introduced in June 2012; trading in the 30 to 33 range at the time, it was still in that range when the calendar flipped to 2013. Then some of the sales numbers came in, and TSLA took off—from March 2013 to September 2014, the stock had one of the great rallies in recent memory, rocketing 700% in 18 months.

Tim Lutts, Cabot’s president and chief investment strategist, got in even earlier than that. He recommended Tesla stock to his Cabot Stock of the Month subscribers way back in December 2011, when it was trading below 30. Those who heeded Tim’s Nostrodamus-esque advice are currently sitting on a profit of more than 800%!

So when Tim talks about Tesla, you should listen. And here’s what he had to say about the Model 3’s potential impact on Elon Musk’s company—and its stock:

“It’s clear that anticipation of the announcement was a substantial factor in the stock’s (recent) movement,” Tim says, “but the quantity of reservations has exceeded everyone’s expectations, and I think the growing realization among people/investors that Tesla is not just a luxury carmaker is a substantial shift in perception. Perceptions, of course, are key to stock movements.”

Take a look at this chart of TSLA’s movement over the past six months:

Like just about every growth stock, it had a rough start to the year, nose-diving from 240 to 143 in a little over a month. It found bottom in early February, right as the market started to recover, and as anticipation over the Model 3 release grew, momentum in Tesla stock kept building. Now it’s back well above its 50-day moving average, and within striking distance of its all-time peak of 286, reached in September 2014. Since the Model 3 was unveiled on March 31, TSLA has jumped 30 points.

Does that mean we’re on the brink of another 700% run-up in 18 months? Probably not. But it’s hard to underestimate the power of having a car that’s affordable to the masses—not just the rich. More than 325,000 reservations in a week is evidence of that.

To put those reservation numbers in perspective, that’s more than the full-year 2015 sales total for the BMW 3 Series, Mercedes-Benz C-Class, Acura TLX and Lexus IS combined. Those cars, by the way, are essentially a who’s who of small luxury sedans that are likely to represent the Model 3’s stiffest competition.

Granted, not everyone who slapped down the $1,000 for a Model 3 will end up buying the car, but most will. When you consider that the most Model Ss Tesla has sold in a year were the 50,508 it sold last year … well, that shows you the potential of the Model 3.

In essence, the Model 3 introduces Tesla to a whole new audience, allowing every “Average Joe” to buy their first electric car. Or at least that’s the perception. And as Tim said, on Wall Street, perception is everything.

*Follow me on Twitter @cabot_chris

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .