Friday was indeed ugly, but none of us should have been surprised after the media spun Elon's email to employees in ways that made Tesla look like it is in a desperate situation. Volume picked up to 17.4 million shares today, about double the usual volume. Such an increase indicates that what we saw today was mostly the work of some longs who worked up a dread over the email. Of course the shorts did everything they could do to intensify the drop. We saw lots of trading in the first and last minute of the market day with 327K shares trading hands at 9:30am and 525K shares trading hands at 4:00pm. The end of day is a time when covering for daily manipulations is popular because the buying does not change the value of TSLA.
The NASDAQ traded green for about half an hour on Friday but did a swan dive at 3pm for a loss of 1.04%
Comparing TSLA to the NASDAQ, you can see that so much pressure had been applied to TSLA already in the day that the NASDAQ's big tumble at 3pm had only a mild effect upon TSLA.
Official FINRA percent of TSLA selling by shorts was 43%, but evidence suggests the big push-down starting about 2pm (1 hour before the NASDAQ drop) was shorts selling to take advantage of lower volumes, and so I suspect shorts had a bigger hand in the drop than the FINRA numbers indicate. Naturally, volumes increased as the selling intensified, but by then the trend was working in favor of the bears.
The reason the broader markets turned negative on Friday was because China withdrew from negotiations on the tariffs. Those of you who read this article posted a couple days ago by @DaveT know that although the Xi regime may have been negotiating honorably with the U.S., the party has the final say on whether such an agreement moves forward, and both the hard-liners in the party and those segments that would lose government subsidies protested strongly and insisted on an agreement that had as much good in it for China as bad. In order to give a balanced agreement, Trump is likely to impose the full range of tariffs on China in coming months and China will retaliate both with its own tariffs and by buying fewer U.S. treasury bonds. Only when the pain is severe in China and the U.S. is dangling the carrrot of non-tariff access once again to the U.S. markets will the party likely agree to the type of deal that both sides had once thought was close. In other words, Trump would have to first show that he can impose such tariffs and that they would be tolerated by the U.S. population. With consumer confidence at a high here in the U.S., the country is positioned well to weather a trade war. Look for a long, drawn-out tariff war as a likely scenario. Tesla's GF3 in Shanghai will work around the tariffs likely to be imposed by China this year, but as Trump imposes the full range of tariffs, the Chinese economy will suffer, and that lower economic output will affect auto sales. Fortunately, young Chinese who hold good jobs and wish to buy cars will still seriously consider a Tesla Model 3 purchase, since the lottery system for ICE license plates in China is too expensive and contains uncertainties.
Another story that has hurt Tesla this week was the story that Trump will be delaying any duties for another 6 months on foreign vehicles entering the country (aimed primarily at European and Japanese carmakers). If there's a ray of sunlight in this week's news, it's that a much more onerous tariff that the Trump administration might impose has been delayed, presumably because of the heating tariff battle with China and a desire to avoid a trade war on two fronts simultaneously. With any luck, cooler heads will convince Trump that the duty on imported vehicles will not generate the intended effects. Rather than driving buyers toward U.S. made vehicles, the more likely scenario is that buyers looking for foreign vehicles will just delay their purchases until the duty goes away, thus harming U.S. automakers more than helping since presumably other nations would impose similar tariffs on the export of vehicles from the U.S.
Looking at the tech chart, you can see that TSLA descended well below the lower bollinger band on Friday. That band was at 216.35 at day's end. Now look on the trading chart and you'll see that TSLA was trading in the vicinity of the lower bb for much of the day until the strong push-down effort came at about 1:30pm, likely initiated by shorts. It's possible that TSLA could recover to the lower bb on Monday if macros are positive, but it's also possible with the steep downward slope of the lower bb that it just keeps adjusting itself to whatever the price of TSLA is.
Expect the shorts to try aggressively to see how far they can run with this particular departure from a hint of a bottom (in the 231 area). They're trying to activate as many stop-loss switches and trigger as many margin calls as possible, especially the fabled margin call on Musk's loan from Goldman. It'll be nice to put an end to speculation on that matter. We need to find a bottom that sticks.
BTW, why do billionaires like Ellison and Musk not sell shares and instead live on borrowed money? The answer is twofold. First, they like to maintain as many shares and as much control as possible of their companies. Secondly, there's no tax on borrowed money, but there are taxes on selling shares for a profit.
This week we saw a significant drop due to negative macros (primarily because of China trade war news) on some days and dread generated by Elon's email to employees. On Friday, TSLA closed at 211.03, down 28.51 from last Friday's 239.52.
The good news this week was that the Maxwell deal closed. Despite the short-term pain for TSLA shareholders, the long term still looks promising for Tesla. Consider watching this video from Hyperchange or refer to the slide above to review the benefits of the acquisition.
* Right now Tesla cells have an nergy density of about 250 Wh/kg, but the dry battery electrode process at Maxwell brings that density up to 300Wh/kg and the companies see a path the 500 Wh/kg. In other words, we could see double the energy density in future cells and batteries.
* Battery life might be doubled with the DBE technology, leading to batteries that last a million miles
* By eliminating the drying ovens, solvent reclaiming efforts and making other changes, Tesla could potentially gain 16 times the cell output from the same factory space. Additionally, battery costs could drop 10-20%, which is huge.
* Cobalt, solvents, and other materials that can harm the environment would be eliminated
Presumably, Tesla has already been testing this battery technology and setting up sample production capabilities for some time. Thus, the technology may be deployed at Tesla much quicker than analysts and investors expect.
The bottom line is that although this has been a dismal trading week for TSLA, the company has actually made strides which will increase its lead over other competitors in the EV vehicle market. The not-so-distant future looks bright for Tesla as Model 3 and Semi come into production next year and cell production becomes less costly and produces a noticeably better product. Keep the good news in mind. Enjoy your weekend.
Conditions:
* Dow down 99 (0.38%)
* NASDAQ down 82 (1.04%)
* TSLA 211.03, down 17.30 (7.58%)
* TSLA volume 17.4M shares
* Oil 62.76
* Percent of TSLA selling tagged to shorts: 43%
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