No trade for me today. Waiting for a resolution tomorrow to see if $TSLA breaks out, ot, $TSLQ puts in downtrend reversal:
Yes, Tesla (ticker: TSLA) is a mess right now, and signs point to difficult times ahead. The wait time for U.S. buyers of its cars has shrunk from more than three months to, well, nothing. Delivery growth has slowed below the company’s own goal, while production has exceeded deliveries by an increasing amount in recent quarters and prices are getting cut, all signs of waning demand. Musk’s behavior since taking over Twitter has also raised questions about whether shoppers will buy other electric vehicles now that they are available. And the U.S. could face a recession by the end of the year.
Ignore all that. Instead, focus on what Tesla is—the leading EV manufacturer in the world and one that has a decade-plus head start on other auto makers, as well. Tesla is able to produce cars at a much lower cost than its competitors, giving it room to cut prices to stoke demand in a way others can’t. Tesla stock is a risky bet, to be sure, but with shares off 72% from their all-time high, to $113.06, and near 21 times 12-month forward earnings, down from 201 times two years ago, the opportunity is too good to pass up.
Friday’s news that Tesla would be cutting prices in China underscores the current dilemma. Tesla has been focused on growing production—it plans on making 2 million cars in 2023, up from 1.4 million in 2022—triggering concerns it will make too many cars and then be forced to cut prices to sell them all. That seems to be what’s happening in the world’s second-largest economy, where Tesla cut prices for its Model 3 by 14% and the Model Y by 10%. Those price cuts, which may be coming to the U.S. in the future, will hurt its profit margins, and Wall Street’s per-share earnings estimates for 2023 have already slipped 10% since the end of September. That dynamic puts Tesla in a bind.
$TSLA daily chart at 2PM, 17 JAN 23
$TSLQ daily chart at 2 PM, 17 JAN 23