(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)
Tesla Inc. (TSLA) bears must be scratching their heads and wondering what just happened. They got the terrible news they had been waiting for when Tesla announced awful Model 3 delivery numbers for the fourth quarter of 2017. To make the dire situation even better for the bears, Tesla announced it was now targeting production of only 2,500 Model 3s per week by the end of the first quarter, down from the target of 5,000 per week. This pushes the 5,000 units per week out to the end of the second quarter. (For more, see also: Tesla Model 3 Production Slashed 75% at Cowen.)
Tesla's stock price hardly went down on the terrible Model 3 production news, finishing January 4 down only 1%, and perhaps speaks to the resiliency of the bulls. After all, the bull story hinges on the success of the Model 3, Tesla's newest 4-door sedan being built for the masses, starting at only $35,000. The Model 3 is part of the reason why the stock is up by nearly 40% over the past 52 weeks.
The ability for Tesla stock to not fall sharply speaks to the resiliency of the bulls, and their ability to look at Tesla on a much longer-term basis, not investing in the stock for a short-term catalyst. This creates a dilemma for the bears as the recent bad news should have sent shares sharply lower, but for a brief moment on Thursday, January 4, the stock declined by nearly 4% before snapping back. The bears must be asking themselves what it is going to take from this point forward to see shares of Tesla fall and give back the significant gains seen over the past year.
The stock has solid technical support around $300 going back to early November, when the company reported disappointing third-quarter results and announced the first delay in the production timing of the Model 3 ramp up. (For related reading, see: Former GM Exec Says Tesla Will Go Bust by 2019.)
One Last Trick
The bears have perhaps one last trick up their selves, and that could come when the company reports its fourth-quarter results. All eyes will be focused on cash flow and cash burn rates. If Tesla shows investors it is burning cash at a much higher rate than expected and that the company may need to come to market yet another time to raise funds to keep the operation afloat, it could spook even some of the most resilient bulls.
But should that fail to alarm the bulls, then the bears have to wonder if anything ever will.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.