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Tesla's (TSLA) Rally Could Be An Opportunity

Daniel Laboe

Tesla TSLA is at it again, with another impressive rally following a devastating share price breakdown at the beginning of the year. The initial decline was caused by liquidity concerns and disappointing delivery numbers, starting in mid-December of last year and lasted until the beginning of June. The share price ripped down over 50%. The price has since rallied 40% since June 3rd, with cash no longer being a concern and deliveries looking strong. 

TSLA is historically one of the most volatile stock on the market with huge swings like the one we saw this year being a norm Elon Musk’s overzealous claims, strong investor opinions combined with big surprises (good and bad) make a potent mix for volatility.

Most Recent Rally

The most recent rally, which began this summer, was initially a bounce back from the liquidity concerns, which were alleviated with a capital infusion along with a record number of vehicle deliveries in Q2 (95,200 cars). Tesla was able to raise almost $3 billion in an equity and bond offering in early May.

TSLA had fallen to the lowest levels the stock had seen in over 3 years, and the reversal was sharp, as short-sellers exited positions and savvy investors saw this as an undervalued equity. Following the robust vehicle delivery figures in June, the share price surged further. The stock rallied almost 50% in a month and a half after its low into earnings. TSLA missed big on its Q2 earnings, which led to another stock break down.

This breakdown only lasted a month, and we are now back up to the $250 level, which this stock has historically bounced off. This $250 level is represented below in a 3-year chart by the red line. Investors can’t stay away from TSLA when they see a price they like. This stock is also prone to trend trading (until it’s not), meaning that it has big run-ups and run-downs.

TSLA’s October rally is due to its record-breaking delivery figures. The EV firm delivered an astounding 97,000 cars in the 3rd quarter. Elon’s over-ambitious delivery forecast of 360,000 to 400,000 vehicle deliveries may still be attainable if the company can deliver 105,000 in the 4th quarter.  

This boost in investor sentiment could be a good trend trade into earnings, which is expected after the bell on Wednesday, October 23rd.

Shanghai Gigafactory

Tesla’s Gigafactory 3 in Shanghai, China, is going to change the game for the electric vehicle maker. US automakers are going to be subject to a 50% import tax. Tesla’s new domestic Gigafactory will shield it from this tax and give the company direct access to the largest electric vehicle market in the world.

This new factory is expected to start production this quarter and looks to be on schedule, something that is rare for Tesla. This company is anticipating to make 250,000 cars per year in Phase 1 and eventually reach its capacity of 500,000 vehicles produced annually.

If the project can be completed with no hiccups, this will solidify the firm as a global EV leader. China buys more than double the number of electric cars of any other single country, and Tesla’s direct access to this market should proliferate its sales.

Take Away

Currently, electric vehicles make up less than 1% of global passenger cars, and by 2030 this figure is expected to be closer to 15%, according to IEA. The market for electric vehicles is proven, and Tesla not only is the market leader, but it produces the highest-quality vehicles. Its economy class vehicle makes it affordable for a huge portion of the market.

Tesla is positioned to take over the automotive industry entirely as the world move to EVs. The archaic big 3 (Ford F, GM GM, Fiat Chrysler FCAU) will not be able to keep up the accelerating innovations and economies to scale that Tesla has already achieved.

 

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