MorningWord 10/21/16: Tesla (TSLA) – Elon At The Wheel

by Dan October 21, 2016 9:41 am • FREE ACCESS

Tesla (TSLA) has had a fairly newsy year. They had issues with their autopilot in their Model S & X, push-out of completion and cost over-runs of their battery gigafactory. They also introduced their mass market Model 3 with pre-orders equaling nearly 400,000 but that’s not likely to ship until 2018. The pre-orders were significant because that was essentially a $400 million zero interest loan in the form of customer deposits. They then announced their $2.6 billion bid (bailout) for SolarCity (SCTY) all amidst renewed investor concern about how to fund CEO Elon Musk’s ambitions as cash burn has become a big investor focus, giving way to the increased likelihood of dilutive capital raises, the last coming in mid May when the company sold 10.7 million shares at $215, with the overhang of more to come (Musk has gone back and forth on this).

Wow that was a mouthful.  The stock’s 2016 range of $140 on the downside in February to nearly $270 in early April, reflects the volatility in execution of on such ambitious plans, but also reflects changing investor faith in their balance sheet. And a constant backdrop for investors knowing that the company is led by a visionary who has proven on numerous occasions throughout his storied career that he is willing to take his companies to the brink in pursuit of his extraordinary goals. The stock is now attempting to settle in and around $200, down 17% on the year, very near the mid point of the 2016 range

If Steve Jobs and Jeff Bezos had a child together his name would be Elon Musk. He has a great shot at redefining the industries he has set his sights on as Jobs and Bezos have done, and for those who are thinking about TSLA as an investment for the next decade or two, I suspect a lot of the real time day to day commentary on the company, their short term strategy, their products, capital position, competition etc is all probably noise and click bait. But that stock is interesting on that day to day basis now that all the man crush stuff is out of the way.

The next identifiable catalyst for TSLA is Q3 earnings due Wednesday, Oct 26th after the close. The options market is implying about a 5% one day post earnings move. which is a tad shy of the 4 quarter average one day post earnings move of 5.75%, but well below the 10.6% average post earnings move since going public 2010. One reason for the implied move below the near and long term averages is that the company already pre-announced Q3 Model S & X deliveries a few weeks ago (around 24,500, up 70% year over year).  I suspect the focus on the call will be Q4 delivery guidance, color on the SolarCity deal, and  ovbi capital needs.

From the April 52 week highs sentiment, as seen in the stock, has been less than sanguine. The stock is down 26% from those levels, in a well defined downtrend, making a series of lower highs and lower lows.  From a purely technical standpoint, the TSLA chart is very near an inflection point. It’s straddling the nice round number of $200, tempting to break the uptrend from the February panic lows, and failing like a boss at the downtrend repeatedly:

TSLA since Sept 2015 from Bloomberg
TSLA since Sept 2015 from Bloomberg

Options prices seem fair into the print. We will be sure to follow up with some trade ideas. An immediately obvious one would be near term stock replacement for long term holders worried that the next chapter may be a bit rocky.