Tesla (TSLA) opened up a couple percent this morning (before failing this afternoon) following tweets last night from CEO Elon Musk. Deliveries for the much anticipated Model X SUV will start on Sept 29th. Musk addressed the price of the Model X and announced the timetable for pre-orders of the mass market Model 3 which will start production in 2017. Tweets here, read from bottom:
So what he’s saying is that the Model X is going to be more expensive than the already expensive Model S. If you’re wondering what that 5k more looks like, it means that the base price for the Model X will be somewhere in the neighborhood of 132K. 132k! From BGR:
Late on Tuesday, Tesla started allowing some users who signed up for pre-orders to configure their vehicles online. As it stands now, the configuration is only available for the company’s Model X Signature Series, a limited edition model. The base model Signature Series Model X will set users back $132,000. For consumers who want to truly trick out their Model X and opt for every upgrade option possible — including a Tow Package and Ludicrous Mode — the final sticker price rises to $144,750.
But after confirming Model X pricing Musk then tweets that the Model 3, the long awaited “everyman’s Tesla” will cost $35k with production starting in 2 years.
But here is the thing. Nissan is already making Leafs that retail for 30k. Tesla is delivering new models for 130k+ and promising 35k cars two years from now. Can they even build an affordable car is is it vaporware for an upstart without the production capacity of its massive competitors?
Obviously I’m not the first person to doubt that TSLA can build an affordable car. I hope they can. I’m rooting for them. But all I care about here is the stock. And the entire bull thesis on this stock is they can make an affordable car. So far all they’ve proven is that they can incrementally build more expensive cars. The cars are amazing. But so are Ferraris.
Obviously this all hinges on the gigafactory. That’s Tesla’s stated solution to affordability. But there are so many ifs here. As I said Nissan is already spitting out Leafs that retail in the 30’s. Yet Tesla tells us the Model 3 in a similar price range is two years away from production and depends on a build out of an experimental, never been done before, battery factory.
So the bet here is that TSLA does everything they say they will do, executes the gigafactory on time and suddenly starts producing a car 100k less than their latest model. That’s the bull case. And it make sense, because if they can execute, the gigafactory has massive opportunities outside of just their own cars. And I’m sure if they can pull it off, the Model 3 will make the Leaf look like a toy. Again, I hope for the planet’s sake they can do it. But will investors really continue to value this company for the next two years on these hopes? Or do they start to become impatient?
Elon Musk is a genius. But so are the guys at Google and other dreamy futurist tech companies that constantly get positive press for initiatives that never actually happen or never work (remember when the press went gaga over how Google was going predict flu outbreaks?.)
Tesla has proven that it can build the best car the world has seen in quite some time. But it’s really expensive. They’ve yet to demonstrate that they can lower the cost of these great cars. In fact, they’re going the wrong way while promising a 35k car that may or may not ever exist.
Dan addressed other concerns in a post from early August:
Last week on August 5th, despite reporting eps losses that were less than expected, and revenues that were inline, Tesla lowered full year 2015 car delivery estimates from original guidance of 55,000 to between 50,000 and 55,000. This sent shares down 9% the following day, and now down about 15% from the 2015 high made in mid July.
Another concern from the Q2 conference call was the accelerating cash burn. The company is in the throes of not only producing two models, but also building its “gigafactory” and developing its stationary storage product. Overnight the company addressed the liquidity concerns stemming from the cash burn by selling 2.7 million shares at $242 a piece and raising $652 million, with CEO Elon Musk buying $20 million worth of his own stock!
Let’s look at the chart:[caption id="attachment_56624" align="aligncenter" width="660"] 6 month TSLA from LiveVol Pro[/caption]
The stock is butting up against the downtrend line established this Summer. A failure here and it could see the low 200’s amid broader market weakness. And as we’ve seen countless times, sentiment in story stocks can change on a dime when a bull market ends.
Volatility is higher along with the broader market but not insane historically for TSLA stock:[caption id="attachment_56625" align="aligncenter" width="678"] 2 yr HV30 vs IV30 from LiveVol Pro[/caption]
The thesis for a trade here is that market sentiment has changed, and investors in story stock like TSLA will become more impatient with promises of futures game changers. So here’s the trade:
Trade – Buy the TSLA ($247) Dec 230/180 put spread for $13
- Buy 1 Dec 230 put for 18
- Sell 1 Dec 180 put at 5
Breakeven on Dec expiration:
Profits of up to 37 below 217 with max gain at or below 180
Losses of up to 13 above 217 with max loss of 13 above 230
Rationale: Market sentiment has changed. If the broader market continues to be under pressure investors will grow impatient with story stock like Tesla who have yet to prove their bull case. The Model X is likely to cannibalize a large part of S sales and unless the Model 3 stays on schedule and can actually be produced for the price they promise (a big if) sentiment in the stock could quickly change.