Event: Tesla (TSLA) reports Q3 results tomorrow after the close. The options market is implying about a 8% one day move which is rich to the 4 qtr avg of about 5.25% and the long term average of about 11.5%.
Price Action / Technicals: Shares of TSLA have been very volatile in 2015, trading in a nearly 60% range, or a little more than $100 from the 52 week lows made in March and the all time highs made in July, and now down nearly 4% on the year. The stock should find no shortage of technical resistance just above $260 and healthy support in the low $180s where it made a double bottom low in Q1:
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TSLA 2 year chart from Bloomberg[/caption]
Stretching the chart out to a two year view, it becomes apparent just how important the $200 level is:
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TSLA 2 year chart from Bloomberg[/caption]
Sentiment: Wall Street analysts remain fairly mixed on TSLA shares with 8 Buy ratings, 7 Holds and 5 Sells, with an average 12 month price target of $295, 27% above where the stock is currently trading. Short interest is at about 27% of the float, or about 26.5 million shares, very near the 28 million shares, or 22% of outstanding shares held by founder and CEO Elon Musk.
Volatility Snapshot: 30 day at the money implied vol (the price of options, blue line below) is very near the levels of the prior last three earnings reports, while realized vol (how much the stock is moving, white line below) is almost 20% below implied. This spread usually converges post earnings:
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TSLA 1yr chart of 30 day at the money IV vs Realized Vol from Bloomberg[/caption]
Estimates & Forecasts from Bloomberg:
-3Q adj. loss est. 56c (range 85c loss to 1c EPS)
-3Q rev. est. $1.24b (range $1.15b-$1.34b)
-3Q gross margin est. 24.5% (range 22.9%-27.9%)
-2015 adj. loss/shr est. 91c (loss range 16c-$2.79)
-2015 rev. est. $5.43b (range $5.09b-$5.71b)
-2015 capex est. $1.48b (range $1.31b-$1.58b), co. forecast $1.5b (May 6)
-2015 gross margin est. 24.7% (range 23.5%-26.7%), co. forecast 30% (May 6)
NOTE: Delivery ests. for 4Q (avg of 4 ests): Model S 14k, Model X 2.5k, total 16.5k
NOTE: Oct. 2, Tesla Delivered 11,580 Vehicles in 3Q, Including Model X
My View: On Oct 2nd TSLA announced that they had delivered 11,580 cars in Q3, which included the initial launch of their much anticipated Model X suv, which should reduce some of the mystery, but Q4 guidance will likely be key to see how the roll out of the Model X is affecting deliveries across the company’s entire portfolio, all of which are made in the same factory. The stock is down 13% since pre-announcing Q3 deliveries as the stock has seen a very prompt sentiment shift in the last month, as Consumer Reports took off their recommendation of the Model S after news of reliability complaints.
I am not one who cares to focus on the stock’s egregious valuation, there is little justification for the stock’s $28 billion market cap, a company which loses money, is bleeding cash, and only sold 33,500 cars last year and is only expected to sell 55,000 this year.
The TSLA story is really about broadening out from luxury electric cars like the Model S, D & X, and moving towards volume production of their planned mass market Model 3 that they promise will cost less than $45,000 and the proliferation of stationary storage. For all of this to happen TSLA needs to complete the build out of their multi-billion battery factory. A factory the company will need to fund through continued debt issuance and/or dilutive equity issuance.
There seems to be growing expectations that the company will lower their Q4/full year 2015 delivery estimate as complications with Model X could have slowed current deliveries.
All that said it seems there is a good bit of bad news built into the stock as we head into tomorrow’s earnings.
We will take a closer look at potential trades tomorrow prior to results.