Event: Tesla (TSLA) reports Q2 results tonight after the close. The options market is implying about a 7% one day post earnings move, which is just shy of its 4 qtr average one day post earnings move of 7.5% and well below the 11% average one day move since its June 2010 IPO (13.3 million shares were sold at $17).
Price Action / Technicals: Shares of TSLA are down 5% on the year, and down 15% from their 2016 highs made in early April following the frenzy around the mass market Model 3 pre-orders.
You know the drill as it relates to charts (as my pal and co Options Action panelist, and technician extraordinaire Carter Worth likes to say), “draw the lines anyway you like, but to my eye I see” a downtrend that has been in place from the April highs, making a series of lower highs and lower lows, with the stock now butting up against the downtrend. I also see near term resistance dating back to mid 2015 at $240, just above that downtrend, and technical support at the nice round number of $200, and then towards the lower bound of the downtrend near $180:[caption id="attachment_65490" align="aligncenter" width="600"] TSLA 1yr chart from Bloomberg[/caption]
Below support, there is the obvious air-pocket down to the 2014 low, a level nearly tested in February when the stock was down 40% from its closing tick on Dec 31st, 2015:[caption id="attachment_65491" align="aligncenter" width="600"] TSLA since Jan 2014 from Bloomberg[/caption]
My View into the Print: It’s been a newsy quarter for TSLA:
- In April the company introduced the mass market Model 3 expected to ship in mass in 2018, and collected pre-orders at $1,000 a clip to the tune of $400 million. Essentially raising that amount at 0% interest for more than 2 years.
- In Mid May, the company raised close to $2 billion dollars in a secondary offering to fund production of their expanded auto offerings.
- In June the company revealed their intent to buy SolarCity (SCTY), the solar panel company that TSLA CEO Elon Musk is the largest shareholder and chairman of, and just yesterday inked the $2.6 billion deal.
- In early July the company announced Q2 car deliveries which once again came in below expectations, but upped their second half delivery to last year’s total near 50,000, and 2017 estimates between 80,000 and 90,000, which is above current consensus.
- Lastly the death of a Model S driver back in early May, but disclosed following their May 19 capital raise, caught the eye of the SEC and that of some short sellers.
So what’s left? A little thing called earnings, or lack thereof. The company lost 57 cents on an adjusted basis, or $2.13 on a GAAP basis, and is expected to lose 60 cents in Q2, or only $1.50 on a GAAP basis. That’s mild progress, I suppose, when you consider some inputs that are having less of a negative impact on profitability in GAAP terms. EPS is expected to earn 37 cents in Q3 and 99 cents in Q4 (a loss of 47 cents and a gain of 13 cents in GAAP terms) but that seems pretty optimistic in my opinion.
With the stock 5% above their secondary offering price, the company likely needs to guide gently as it makes sense to not upset those new, or increased holders. Short interest remains high at 26% of the float, and that will only increase on completion of the SCTY deal (short interest is near 40%) and will increase Musk’s holding in the combined entity, as he owns 21% of TSLA and 22% of SCTY.
It’s my view that it will take a material guide lower for the stock to test $200 post results.
We will update our current positioning from late June (here), and follow up with some options trade ideas for existing holders or those with a directional inclination.
Estimates & Forecasts from Bloomberg:
-2Q adj loss est. 60c (range $1.06 loss to 26c EPS)
-2Q rev. est. $1.63b (range $1.4b-$1.91b)
-2016 adj EPS est. 24c (range $1.19 loss to $1.60 EPS)
-2016 rev. est. $8.4b (range $7.66b-$9.12b)
-2H 2016 deliveries est. (avg of 3 analysts) 48.3k, TSLA forecast 2H ~50k for 2016 total ~79,180 vehicles