TSLA Analysis - What you Need to Know

Nickola Tesla was a quirky genius and a very poor businessman. Elon Musk is a quirky genius and his business acumen is improving in tandem with the vehicles his company is producing.

Tesla Motors has been faulted by analysts recently due to its delay in getting cash flow positive. In mid-March, however, the company drew rave reviews from a group of analysts who made a site visit. They literally gushed over what they saw and felt.

Curiously, just before the launch of the Model III in late March, S&P Global Market Intelligence’s Efraim Levy cut shares to “Sell,” citing valuation and execution risk. Moreover, Levy put a paltry $155 target on the stock.

Of course, few analysts have a good sense of timing and Levy’s meager valuation number represents the viewpoint of a great number of Tesla skeptics. That said, I believe they are going to be disappointed in their bearish thesis and we will witness the stock going to all-time highs in short order.

Reason #1 is that Tesla Motors had a fabulously successful pre-launch of its $35,000 Model III sedan, collecting more than $300,000,000 in deposits for a vehicle that will probably not be available until early 2018. The uber-response means there should be little doubt about the mass market demand for Tesla’s mass market vehicle. The Millennials love Tesla and the company’s dream/plan of selling 500,000 cars in 2020 will not be demand constrained.

Reason #2 occurred today (4/11). After announcing a recall of 2,400 Model X SUVs due to a potentially faulty back seat hinge, shares of Tesla were down… 46 cents. This on a day when the Dow plummeted 115 points during the final hour. The logic is simple: if Tesla can’t go down on bad news, it is probably not done going up. And there are technical reasons, also.

Based on its Volume Profile Point of Control at $247.50, TSLA has important support right here (shares closed at $249.92). A symmetry analysis using previous swings shows a confluence of projection targets near the all-time high of $291. I’d bet money TSLA will get there so if the broader market doesn’t absolutely crack here, I’m looking to buy this dip.

4 Comments

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Visitor - Dr. Reid:
Chris- You sound very well informed about technological evolution. But a "Tesla" isn't just a battery on wheels. If you get a chance take a test drive. Musk is on a single-minded mission to 'wow' his customers; a mission very different from all other U.S. car manufacturers. It's his commitment to ludicrous excellence that sets Tesla apart... and it always will.

Posted: 2 years ago

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Visitor - chris:
Dr. Reid, I would say that all of your counterpoints are legitimate except the "they will never have any serious competition from a U.S. car manufacturer". I notice that you restricted your claim to domestic manufacturers. I'm not sure what your purpose was there, but it would seem that you believe that their moat is larger than many, including myself, perceive it to be. Tesla's battery technology is not revolutionary, it is merely evolutionary. Tesla leads the way in power to weight ratio and storage capacity for its batteries at this point, but other car companies are already closing the gap substantially. Intel leading AMD in process technology is, I believe, an appropriate analogy. Both Intel and AMD use the same general architecture for their processors, CISC X86 assembler and compiler respectively. Aside from microarchitectural differences, the most important factor in performance is process technology which is simply the distance between transistors on the silicon wafer. Intel maintains an advantage over AMD in process technology because their capital and human resources are several times greater than AMD. Superiority in process technology is a matter of evolution, not revolution at this point. The ability to lower the operating voltage of the transistors and tweak the interconnects so that they can run on a finer lithographic template, is mostly a matter of refining existing technology, not reinventing the wheel. Tesla is not reinventing the lithium ion battery, they are just pouring billions into refining that technology and into expanding manufacturing capacity. Their position in this regard is not unassailable given the resources of their potential competitors. Also, as I stated in my comment, the greater the overall demand for ZEVs, the brighter the flame will be to draw those very sizeable moths.

Posted: 2 years ago

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Visitor - Dr. Reid:
Hi Chris- Tesla is a glass half full or half empty depending on one's biases. I think your argument is basically that the company is losing money and that will eventually matter and be reflected in the stock price... even if it has not yet mattered. Honestly, when TSLA dropped like a stone to $140 I was thinking the same thing. Now I'm not so sure. Some stocks like AMZN do very well despite miniscule earnings... other metrics matter more. If we get a full fledged bear market in the major indices I would not want to own TSLA. Until then, the company appears to be executing spectacularly well on the manufacturing side and they will never have any serious competition from a U.S. car manufacturer. I'll be looking to buy this dip for a ride up to $291, but that's a short-term trade. I do appreciate your longer-term perspective.

Posted: 2 years ago

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Visitor - chris:
In September of 2014 the estimate for Tesla's FY 2015 was $5.50 EPS on a non-GAAP nonsense basis. Tesla managed to turn that into a $2.30 EPS LOSS! That's a BILLION DOLLAR MISS!!! As Christopher Walken would say, WHOA! I think that it is safe to say that in the process of ramping up production toward 200,000 vehicles over the next 2 years, this trend of expanding losses will continue, resulting in billions of dollars of red ink in that timeframe. Also, the rest of the automobile companies are not going to sit back in stunned fascination. The more robust the demand becomes for ZEVs, the more intense the competition will be, and Tesla will experience greater pressure on margins as a result. I say that this stock has MUCH more risk to the downside than to the upside over the next 2 years.

Posted: 2 years ago

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KennethReid

Member Since 07.29.2013

Dr. Kenneth Reid holds a Ph.D. in clinical psychology. For almost two decades, however, he has been applying his academic training to the markets as an active trader, market pundit, model portfolio manager and trading coach. Dr. Reid has written for Forbes, SmartMoney, SFO Magazine and appeared on CNBC. A competitive tennis player, he uses principles and techniques proven in sports psychology to help traders achieve peak performance. His website is www.daytradingpsychology.com

Dr. Reid also has a keen interest in Tesla Motors and has a blog and trading service for Tesla and TSLA stock at www.teslachronicles.com