TrendTrader007
Active Member
extremely well written and super informative post by PapaFox. pretty much covers all that longs need to know about TSLA SP actionWhen Does the TSLA Pop Come?
Here are some thoughts on when we could see TSLA break free of the long downtrend it has been on and engage in a serious uptrend. Judging from the number of shares sold short, the first segment of that uptrend could be quite steep as shorts who have made money with the stock jump ship to try and protect their profits. For us long investors, how do we time the beginning of the uptrend? My suggestion: don't time it, because when it takes off it may climb at quite a steep angle. Instead, establish your position by buying at good prices (TSLA is on sale, if you haven't noticed) and benefit from the uptrend when it arrives.
What could cause the uptrend to not happen at all?
Of course this is possible, but I think it would take a macro meltdown or a serious problem to make itself known at Telsa/SCTY in order to prevent the pop. The primary reason for the pop not happening would be some event or series of events that prevent Tesla from reaching substantial production of Model 3 in the second half of 2017. Running low on CapEx money could be one cause, thus this possible remedy
* The Musk-funded option for Tesla's CapEx needs to reach Model 3 substantial production- Let's say that Tesla needs an extra billion dollars to fund the Model 3 ramp and insure that the bank account has sufficient funds in it. How does one do this in a pinch? One possibility is that Elon Musk takes out a loan and collateralizes it with some of his SpaceX shares. Musk has in the past shown a wlilingness to gamble his entire empire to save a portion of it, why not gamble to save Tesla? In January, 2015, Fidelity estimated that SpaceX was worth $12 billion, but they later revalued their SpaceX shares by raising them 15%, so a value of nearly $14 billion is probably pretty accurate for SpaceX.when rockets aren't exploding. SpaceX plans to get back to launches by the end of the year. Provided that things go well with the launch, SpaceX's value could easily exceed $14 billion in value at year's end. People don't know exactly how much of SpaceX is owned by Musk (it is a private company), but 25% could be taken as a realistic number, and that equates to $3.5 billion of SpaceX owned by Musk. If Tesla got into a real pinch, Musk could collateralize the loan with SpaceX shares, and when Model 3 is in large-scale production and the SP is up, an equity raise could be used to pay off the loan. Musk also has billionaire friends in Silicon Valley who might be of help. The bottom line: Musk has too many options to choose from and Tesla is not going to run out of cash as it heads towards Model 3 substantial production.
If a pop is coming, when will it be?
That, my friends, is the tens of billions of dollars question, and I don't pretend to know the answer. Let me give some ideas of when it becomes more likely to happen, though.
* When TSLA drives out from beneath the dark clouds- Since Tesla announced plans to move 500,000 vehicle production from 2020 to 2018, Wall Street started to worry. When Musk announced the proposed merger with SCTY right after the fund-raiser, Goldman and Morgan Stanley had conniptions. Share prices fell and shorts became emboldened and started selling-in again. So, for most of 2016 there's been this fear of SCTY merger hanging over TSLA. Recently, though, TSLA has shown a good Q3 ER and SCTY has been changing its business plan to eliminate the negative cash flow. The current projection by Tesla is that SCTY will be cash flow neutral in Q4 and 2017 and it will generate $500 million in cash for Tesla during the coming 3 years. This is not scary talk. Once the merger is completed, big funds will be more likely to buy in again because a large question mark has been removed. Big funds buying in can overcome the negatives associated with creative short-selling. The other possible dark cloud for Tesla is a Trump presidency, but if words coming out of the Trump organization can be believed, there will be no attack on clean energy. Thus, the Trump presidency cloud is likely to dissipate much quicker than many investors realize, once investors realize that Trump's policy of enabling domestic expansion of fossil fuel extraction is not at odds in his mind with continued growth of clean-energy-related products. It's growth he wants, not growth of fossil fuels at the expense of clean energy.
* When an event comes along that causes the shorts to switch sides and become longs- Nobody in their right mind is expecting Chanos to announce that he has gone long on TSLA, after all the negative things he has said about the company, but a lot of shorts are into shorting to make a buck, and if they understand how detrimental to the stock price the creative efforts of shorts have been over the past six months, and they understand that shorts will be getting out in big numbers, then the logical thing to do is to go long on Tesla when a catalyst happens which suggests that Tesla will, in fact, reach its goal of substantial Model 3 production in late 2017.
* When TSLA delivers an excellent Q4 ER and upbeat 2017 guidance- We have lots of reasons to believe that gross margin on S and X will be improved in Q4 over Q3 ($2000 price increase in Model S 60, greater increase in autopilot prices compared to costs, elimination of Model X 60 and mandatory inclusion of air suspension in all Model X vehicles). We have reason to believe that Tesla will deliver 25,500 or more vehicles in Q4 (production was above 25,000 in Q3, 5,000+ vehicles in delivery pipeline at end of Q3, guidance is for this number or above, and a tradition of drawing down vehicles in delivery pipeline during Q4 in order to meet or exceed yearly guidance). With good delivery numbers and good margins, Q4 should produce an attractive ER. Fewer weeks are available, no ZEV credits are expected, CapEx will be up substantially, but analysts already know these things and would take them into consideration. What will make 2017 guidance attractive will be the inclusion of Tesla Energy substantial revenues and profits. Add to these profits the positive cash flow once Model 3 starts rolling off the line in substantial numbers (positive cash flow enabled by the 60 day payment terms with suppliers and quick delivery methods). The market has a habit of anticipating good things, and we therefor may not have to wait until the Q4 ER to see the positive results.
Edit: Let me add one more...
* When TSLA breaks through a significant technical point- We have seen multiple times in recent months when the talking heads (including Cramer) predicted TSLA was going higher, but it never happened? Why? These commentators typically base their projections upon technicals and TSLA has approached signficant technical points in recent months and prepared to climb through them, but was always beaten down. By studying daily stock charts, I feel very confident in saying that short-sellers did indeed sell a sufficient number of shares just below the technically-significant numbers to prevent a penetration, and TSLA sunk because expectations were not met. Through a combination of larger institutions re-entering TSLA buying after the SCTY merger is completed and investors becoming more acquainted with the role of short-sellers in preventing the climb through significant technical numbers, longs will find the incentive to overpower the blockade and start significant stock price appreciation.
i vote for PapaFox to be the contributor of the year 2016
