Friday was a big day for the Dow, up 1.74% but a much lower up day for the NASDAQ, up 0.61%. Tesla's gain of 1.35% was better than that of most tech stocks I follow today. TSLA loosely followed the trajectory of the NASDAQ today and we saw a robust 97K shares traded in the final minute.
This week was the 8th straight gain for the Dow, suggesting that worries of either a recession are diminishing and hopes of a tariff agreement between the U.S. and China are increasing. Confidence in stocks will hopefully translate into confidence in the economy and this confidence is important for robust buying of new vehicles.
The NASDAQ closed up 0.61% on Friday, much less than the Dow's rise
For the second day in a row, short percent of selling decreased, this time to 54.5%. A likely reason for the decline? The macros have been turning bullish and it's much harder to make money with TSLA manipulations when macros are heading upward.
To put things in perspective, consider this TSLA chart dating back into October. We see the full range of trading, from the lows slightly below 250 to the highs approaching 380. Halfway between these numbers is 315, which is approximately where the red 200 DMA resides at present. You can see that TSLA's present price is conservative, both in terms of the trading range and in recognition of the past two quarters of massively cash flow positive operations. The trading range has been so narrow over the past 2 1/2 weeks that the upper and lower bollinger bands are running in towards the center.
Now, to put this 250 to 380 trading range into perspective, let's look at the chart below.
You can see that what looks like massive price swings is rather tame compared to the rate at which Tesla's revenues have been climbing since 2014. The progress that Tesla has been making in expanding its business is all too clear by the revenue increases, but the stock price graph lags far, far behind. Implications? The obvious conclusion is there's massive upside to TSLA once investors recognize that the company's progress in becoming a profitable entity with massive growth is intact.
Unfortunately, the media has been keen to echo all of the Tesla bear points, with one of the largest being that Q3 will be the best quarter Tesla ever sees. Q4 fell slightly short of Q3 in profitability but exceeded Q3 in various other metrics and Elon has warned that Q1 19 might barely be profitable, and so the market's jury is still out about Tesla's ability to grow its profitability.
There are two ways to remedy this situation: reducing costs to make the standard range Model 3 profitable or demonstrating that organic demand is sufficient to continue growth with the higher-end variations of Model 3. In all likelihood, what we'll see from Tesla is a mix of these two solutions: first with profitable expansion to worldwide deliveries of Tesla's high end M3s and then by summer the profitable introduction of the Standard Range (SR) Model 3. Worldwide demand is not being affected by the expiration of full U.S. tax credits on the vehicles. Both European and Chinese demand look good for the high end M3s right now in Q1. In Q2 right-hand drive M3s begin to be sold. By summer, Tesla will likely have take steps to profitably offer the SR M3, but there's no rule that the $5K pup option must go away at the initial introduction of SR M3, however, and so Tesla appears to have a lot of wiggle room to buy time while it continues to cut production costs on M3. Economies of scale at 7K M3s/wk will be part of that solution.
Let's now look at specific catalysts that will bring Tesla and Model 3 to sustained profitability.
* Surprise Q1 production rate- Tesla has guided for M3 production rate to hit 7k/wk by the end of the 2019. Various sources suggest Q1 production is already well above Q4 production and climbing. Looking at the
Bloomberg Model 3 tracker site, I see an estimate of 42K M3s produced halfway through Q1. That's a rate of nearly 85K for the quarter and production rate is still increasing.
Model 3 VINs says that 13,225 new M3 VINs were just registered with NHTSA. Looks like Fremont factory is cranking! High production will lower costs and will lead to better profitability.
* When the China tariff wars are finally concluded, Chinese demand for high end M3s will benefit from a tariff reduction and worldwide demand will grow as economies react to better performances of both the U.S. and Chinese economies. Expect to see a sizable increase in TSLA SP when the China tariff wars are concluded.
* When Tesla's Full Self Driving (FSD) features become available to enhance the driving experience sometime in 2019 (but still falling short of actual self-driving), Tesla will be able to take a profit on a portion of the revenue it has already collected from customers for this software. Expect to see the 3.0 hardware installation signalling that a robust software upgrade and the ability to realize some revenues as profits is not far off. When FSD features are demonstrated and made available for Tesla owners to beta-test, Tesla's autonomous driving efforts may well start to be registered as valuable by investors and we'll start to see SP appreciation based upon value given to FSD.
My best guess is that production will be well above what most analysts were expecting for Q1. I would not want to be sitting on the sidelines nor be short on TSLA right now with these developments and this low stock price. An imposition of tariffs by the U.S. and China would cause a temporary dip in the SP, but chances are in favor of the U.S. and China holding back on steep tariffs again while the two sides hammer away on an agreement.
For the week, TSLA closed at 307.88, up 2.02 from last Friday's 305.80. Have a great 3-day weekend. TSLA resumes trading on Tuesday.
Conditions:
* Dow up 444 (1.74%)
* NASDAQ up 45 (0.61%)
* TSLA 307.88, up 4.11 (1.35%)
* TSLA volume 3.9M shares
* Oil 55.98
* Percent of TSLA tagged to shorts: 54.5%
