Tesla Trying To Rally Above $200 Ahead of the Q2 Delivery Report
Stock is up 15% in 10 trading days despite negatives outweighing potential positives before the Q2 earnings announcement.
Why is Tesla Rallying if Things are so Bad? Welcome to Trading Tesla
Despite more bad news than good news recently, Tesla’s stock is up 15% in the past 10 trading sessions versus a 1.5% rise in the Nasdaq 100. Today (June 26) alone, Tesla spiked by 5% despite three investment banks lowering their Q2 and 2024 estimates while the tech-heavy Nasdaq 100 was roughly flat at +0.25%. The chart above shows that Tesla is trading in an enclosing wedge from which it will either break out or break down.
This is a brief note about what I’m afraid of and what I’m confident about while being short Tesla into Q2 earnings results on July 19th (Bloomberg estimate) with the Q2 delivery report coming up in between on July 2nd.
It’s interesting to see this rally start less than a week before Tesla’s Q2 delivery report on July 2. The current consensus of 441,000 is dropping quickly as nearly 10 investment banks have recently lowered Q2 delivery estimates, yet Tesla is pushing higher in a flat market.
Cynical Tesla bears like me believe that Musk’s family office is buying weekly call options in order to force market makers to bid Tesla up (why else would Tesla be up 5% in a flat market with no positive news?). This might be because next week’s quarterly delivery report is bad or because Musk’s margin call is near being breached.
There is minimal short interest in Tesla right now (1.5x average daily trading volume; the 5-year high was 6.6x in August 2019; anything over 3x is “squeezy”) and Tesla usually trades on technicals in the absence of major catalysts like quarterly earnings or bad delivery reports. So, it’s not a short squeeze that’s causing Tesla’s stock to rally now.
My short position in Tesla is 2/3 fully loaded ahead of Q2 earnings results and I intend to add another 1/3 before that, especially if it trades above $200. I’m confident that earnings and guidance on the Q2 call will be negative, but as a Tesla short seller, here’s what I’m most nervous about right now:
Q2 Deliveries Either Above or Below 418,000: The buyside expectations for Q2 deliveries are said to be between 410,000 and 425,000 so anything above or below this range could have a large impact on the stock. The Q2 delivery estimates by TroyTeslike—a historically accurate predictor of Tesla’s quarterly deliveries—has also cut his estimates recently but is within the buyside’s range.
Upside/Downside Depends on the Market: The broader market (e.g. the Nasdaq 100 and S&P 500) is showing signs of exhaustion after a long rally since April 19th, so if Q2 deliveries are stronger than expected while the market is in a bad mood (i.e. falling), the upside in Tesla will be limited. If Tesla’s Q2 deliveries overshoot 425,0000 and the broader market is in a good mood, Tesla could rally to $230 on a technical basis (16% from here). I’m happy to add above $200 before the July 19th Q2 earnings announcement, which I expect to be disappointing.
Q2 Results and Guidance on July 19th are Key: There are some serious headwinds to Tesla’s Q2 earnings which I outlined in last week’s report (here). And the outlook since then is even weaker given the fact that the EU and Canada will tax China-made vehicle imports from Q3.
My Q2 non-GAAP EPS estimate of $0.30 is 47% below consensus: Q2 consensus will come down ahead of Tesla’s July 19th earnings announcement. But it should be noted that consensus estimates are completely illogical right now as they imply a 29% QoQ increase in EPS despite only a 14% QoQ rise in deliveries amid huge price cuts during Q2. This gives me confidence for limited upside in the share price ahead of the Q2 earnings announcement.
Short-Term Focus is Mainly Technicals: There is likely no monumental news between now and next week’s Q2 delivery report from Tesla. The stock may gyrate to the upside on call option buying if Q2 deliveries next week are in line or above consensus, but weak fundamentals will likely cap the stock unless the Nasdaq rallies.
Near-Term High of $199 After Musk’s Beijing Trip is Key: Tesla traded down to $142 on April 22nd and spiked up to $199 on April 29th (+40% in 5 trading days) when Musk made a surprise visit to Beijing to meet Premier Li Qiang. Someone leaked to the media that Musk secured a “green light” to launch Full Self-Driving (FSD) in China, which led to Tesla being up nearly 11% on the day on April 29th. After no official confirmation, Tesla dropped by 13% over the next 2 weeks. It was one of the more seriously coordinated pumps of Tesla’s stock that I’ve seen in my 8 years of covering the company (short report here). Figure 1 below shows the day that Tesla spiked by 10% (circled in red) on the news of Musk’s "surprise Beijing visit” and where it tried to rally to today (circled in yellow). If Tesla closes above the April 29th high of $199 after the “China FSD pump” in the next few days on no news, it’s definitely a sign that Musk needs Tesla to trade higher before a negative catalyst.
Figure 1: Tesla Trying to Rise Above the 4/30 High of $199 When Musk Was in China & Was Reported to Have FSD “Approval”
Tesla is in Decline
Why Earnings Results Outweigh Delivery Reports: Tesla saw peak quarterly operating profit of $3.7 billion in Q3 2022. Q1 2024 deliveries were 13% higher than that but the $1.2 billion operating profit was 68% lower than Q3 2022. Pricing is as important—if not more important—as volumes. Tesla will only cut prices further on the existing versions of the 3/Y from here on.
Why Tesla Will Burn Cash Until They Have New Models: If a carmaker lowers its price on an existing model, it’s because they’re trying to clear inventory ahead of the new generation’s launch. Tesla has no new models in their pipeline for the next 2-3 years and my auto industry brethren agree that this is a death knell.
Tesla slashed the Models 3/Y prices by 20% in January 2023 and has no new model changes for them despite their 96% weight of global deliveries. The “refreshed” Model 3 (which is almost indistinguishable from the old Model 3) already needs discounts in China and the EU, where it was first launched last October.
Refreshes don’t necessarily revitalize volume sales of a model but are meant to keep prices stable. Tesla has failed at that: the Models S/X prices post-refresh are down 34% from 2022’s average price of $125,240 to current levels of $82,990. Deliveries of 68,874 in 2023 were up by 3% YoY in 2023 on massive price cuts, but 32% below peak sales of 101,417 in 2017.
Tesla’s “AI” Story is the Bane of Tesla Short Sellers: The only reason that Tesla, with declining earnings and profits, is still the most highly valued carmaker in the world is because of Musk’s pie-in-the-sky claims of what Tesla’s AI-driven robotaxis and humanoid robots might be worth (there are zero disclosures in Tesla’s financials about this). Tesla can barely make cars that pass normal safety standards, so it’s hard to imagine them making humanoid robots.
Regarding robotaxis (which Musk said Tesla will reveal on August 8th), Waymo announced today that their autonomous taxi business has been launched in California (legally) and will soon be available in several other states. So, Tesla is officially further behind Waymo as of June 26th.
Why does Tesla trade at 60x 2025 consensus estimates?
Figure 2: Tesla vs Auto Rivals (Ranked by 2024 Pre-Tax Margin)
Figure 3: Tesla vs AI Rivals (Ranked by Best FY25 PEG Ratio)
Current valuation is devoid from reality. Makes no sense at all.
Don’t forget the “paint it black” video years ago. It proves Musk is absolutely willing to fabricate an impressive event on 8/8 even if it is pure fantasy. I could imagine Optimus getting in a newly released robotaxi and driving around town with no steering wheel. There could be a remote control driver but nobody would care. Stonk moon.