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Time to Go Long Tesla Stock Thanks to Model 3

Bret Kenwell

Tesla (NASDAQ:TSLA) has been all over the map, forcing investors to focus on seemingly everything except the automaker’s production. Tesla stock has been as volatile as ever, thanks to concerns over CEO Elon Musk, the Justice Department and whether the company is going private.

One must wonder where TSLA stock price would be trading had Musk not said anything about “considering” taking Tesla private at $420 per share shortly after the company reported its second quarter earnings. Musk hinted at this even though the results weren’t as bad as expected and Model 3 production was significantly improving. Further, management reiterated its call for GAAP profitability and positive cash flow in the third and fourth quarters.

That gave the green light for the bulls to bid shares higher. Tesla stock was on the verge of putting on a massive short squeeze as shares pressed the upper end of its range. But, then, Musk’s take-private tweet took everyone off guard. What’s ensued has been (the now typical) chaos around Tesla. The take-private plan is off the table, the Department of Justice is sniffing around and the company is struggling from a balance-sheet perspective.

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Sizing Up Tesla Stock

That said, the automaker could be turning the corner. It’s clear that everyone is now racing into the electric vehicle segment, be it Daimler (OTCMKTS:DDAIF) with Mercedes, General Motors (NYSE:GM), Volkswagen (OTCMKTS:VLKAY) via Audi, Porsche and even Bentley.

Tesla has clearly found a way to make electric cars amazing. They’re fast, can go long distances and look great. It’s as if the electric car algorithm has finally been cracked thanks to Tesla. Bull, bear or otherwise, observers should be able to acknowledge that much.

Management believes it will produce 50,000 to 55,000 Model 3s this quarter, all of which will start at $54,000 or more. That’s a far cry from the $35,000 short-range base model the company has discussed. When or, quite frankly, if that car ever comes doesn’t really matter right now. Right now, we’re talking about producing more than 100,000 Model 3s in the next two quarters, alongside production of the high-end Model S and Model X.

Tesla should have little issue turning a profit and generating positive cash flow under those circumstances. That should ease some concern over its balance sheet woes. One issue is the expiration of its February 2019 convertible bonds. Essentially, Tesla needs to pay back that $920 million debt one way or the other. With a conversion price of ~$359.87, Tesla stock needs to be above this mark by Feb. 27 to pay back this debt with its stock. Below and it will need cash to do so.

That makes these two quarters quite important, given that it has just $2.23 billion in cash. Some of that is held overseas and with short- and long-term debt of more than $13 billion — there’s not a lot room for error.

Trading TSLA Stock Price

chart of Tesla stock


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A higher stock price will help with those convertible notes and, given everything, one has to be impressed with Tesla stock and its resilience. Making sense of Tesla’s fundamentals is no easy task. Thankfully, disciplined traders can make better sense of the charts.

Tesla stock is currently chopping just below the vital $300 to $310 range. It has broken above steep downtrend resistance (purple line) and is now following a sharp uptrend (blue line).

It’s also consolidating above the 20-day moving average as well — a level that has proven significant over the past few months. Currently, that’s where uptrend support sits too. In our view, TSLA stock price needs to hold $290 for bulls to stay long. Below that and it could begin retesting some lows.

Should that level hold, we need Tesla stock to push into the low-$300s. Over that vital range ($300 to $310) and Tesla has its 50-day at $312 and its 200-day at $316. While not pictured because the charts are complicated enough without another trend-line, a prior significant downtrend line could come into play near $315-$320 as well. It will take a lot to clear that range — perhaps earnings? — but if it can, it could be off to the races.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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