Tesla, Inc. (TSLA) shares dropped nearly 40 points in two sessions after CEO Elon Musk advised that the controversial automaker wouldn't be profitable in the first quarter. He also hedged his prediction about second quarter earnings, stating that a profit appeared "likely" while announcing that worldwide sales would be shifted online. The CEO justified the action, insisting that cost savings from the transition will support a lower $35,000 sticker price for the troubled mass market Model 3.

The controversial billionaire said nothing about the $940 million convertible debt payment due on March 1, but the profitability comment appears to be directed at this obligation, which was satisfied in cash according to The Wall Street Journal. The paper also reported that Tesla's coffers have shrunk by at least 25% due to the outlay, which was required because the stock price failed to hold at or above the $360 required by the debt contract.

Musk's behavior is also back in the news, adding to shareholder anxiety, with the Securities and Exchange Commission (SEC) asking a judge to hold the CEO in contempt for violating the terms of his September agreement. Musk attacked his accusers following the court filing, but this watchdog agency is unlikely to be swayed by threats. Given the conflict, the legal drama could continue well into the second quarter, intensified by the departure of the company's general counsel after just two months.

Legal experts believe that coming down hard on Musk will adversely affect shareholders because Tesla is closely identified with its controversial leader, and banning him from corporate life could drop the stock into a tailspin. However, institutional shareholders have already abandoned the company, dropping accumulation-distribution readings back to levels first reached in 2013. Making matters worse, the stock price hasn't gained a penny in nearly two years.

TSLA Long-Term Chart (2013 – 2019)

Long-term technical chart showing the share price performance of Tesla, Inc. (TSLA)
TradingView.com 

The stock broke out above two-year resistance in the mid-$30s in 2013, entering a momentum-fueled advance that stalled above $280 in 2014. It ground sideways for another two and a half years, finally ejecting higher in the first quarter of 2017. That buying impulse posted an all-time high at $386.99 just two months later, giving way to a volatile trading range that has tested range support at the 2017 breakout three times and range resistance at the 2017 high four times.

The monthly stochastics oscillator carved orderly waves between 2014 and 2017, crossing into a buy cycle in January 2018. It then eased into a shallow sideways pattern, reflecting this stock's mortal conflict between bulls and bears. The indicator lifted above the panel's midpoint and rolled over for the third time in December 2018, reflecting growing danger at the 50-month exponential moving average (EMA), which is being tested for the third time since March 2018.

TSLA Short-Term Chart (2017 – 2019)

Short-term technical chart showing the share price performance of Tesla, Inc. (TSLA)
TradingView.com

The on-balance volume (OBV) accumulation-distribution indicator pushed above the October 2017 high in June 2018 and turned sharply lower, dropping close to the 2016 low (red line) in October. It bounced to August levels in December and turned lower once again, showing no signs of accumulation in the first quarter of 2019. This loss of sponsorship is raising all sorts of red flags, warning that the stock may be close to breaking two-year range support near $250.

A breakdown through the January low at $279.28 would initiate the third test at that level since March 2017. Tesla stock is trading at $285 ahead of Tuesday's opening bell after bouncing at $283 on Monday, March 4. Price action could hover around this level until the March 11 court hearing, but sustained buying pressure is unlikely until the latest SEC action is adjudicated. That could take time, given Musk's recent hiring of the attorney who prosecuted Enron Corporation in 2001. (See also: Enron Scandal: The Fall of a Wall Street Darling.)

The Bottom Line

Elon Musk has triggered another round of sleepless nights for long-suffering Tesla shareholders, warning that the company won't turn a profit in the first quarter while heading back to court on a contempt charge from the SEC.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.