Tesla - Back at the Precipice; $420 funding secured?
Time for a brief Tesla update. China, Crypto, and the Chart. Look out below it shares aren't saved soon.
Since I last wrote about Tesla on March 6, 2021 (as shown with an arrow in the chart below), not a whole lot exciting has happened. It bounced off of its support line, rallied back and forth back to its resistance line, and has since broken that original support line and is now seemingly teetering at the brink of destruction.
As promised in the prior Tesla post, I am not going to delve into too many details here as I think that over-focusing on the details just creates noise. But there are certainly a few points worth noting.
The first topic is a broad one and without being plugged into the Tesla/TSLAQ twitter sphere, it’s hard to pick a great example, but the gist is this: in China, Tesla seems to be going from coddled child to whipping boy. There have been reports of unintended acceleration/brake failure (which IMO is not super noteworthy and you’ll probably find such reports for every make and model) but the big difference is that China state media has amplified these stories and has started to take a very harsh skeptical/anti-Tesla tone (in comparison to a very positive one prior to a month or a few weeks ago). The knock-on effect has been the supposed banning of Teslas from certain roads, spaces, etc. With China sales providing an unexpected boon in Q1, if public opinion (and state opinion) reverses that trend, that may be a serious issue going forward.
The second is the “turmoil” (I put that in quotes because all coins are still up YTD and up many multiples in the past 12 months) in the Crypto market. Tesla famously bought $1.5b in Bitcoin around $30k per coin back in Q1. As of today’s price, they are back to ~breakeven (and they did sell ~10% of their stake at a profit later in Q1 and Elon teased that they might sell more prior to this crash, but then walked that statement back and nothing to that effect has been disclosed). I don’t think the price of the bitcoin on Tesla’s balance sheet is the proximate problem - but rather it is 1) the general sentiment in bubbly assets as well as 2) the fact that the overlap between Tesla shareholders and coiners is pretty substantial. In regards to the former, there may be a (candidly) overdone overreaction to a decline in BTC taken out on the Tesla share price. In regards to the second, there is a more tangible issue of whether those invested in Tesla and BTC and Dogecoin et al start to liquidate rather than be net purchasers due to the decline in the latter assets, creating a reinforcing spiral downwards.
So that all being said, back to the chart, which is truly the most important thing here. A differently highlighted chart is shown below:
As noted earlier, the general uptrend support line broke a week or so ago (that line is now in the mid-high $600s), and Tesla is hanging on for dear life around $600. $600 seemed to offer support previously but didn’t do much here, but ~$560 has held for now. Below $560, I think we could easily fill that gap down to ~$400 in a relatively short (a matter of weeks) timeframe.
At $400 I assume Tesla finds its footing absent an operational meltdown, but the next PTs below that are $300 and $200, the latter being where it really started its post-COVID run.
As I believe I qualified such thoughts with last time, I firmly believe that this is a trade that is dependent on general market (stocks, tech stocks and crypto) movement. If markets find their footing, Tesla may be saved for some time. Elon could always have a fun FSD or Cybertruck pump out there to own the shorts. But if they don’t (and this weekend’s crypto selloff was a good start), look out below.
To play this, I have a small position in put spreads (some bought and now underwater, but so it goes) and here is an indicative trade:
A June 18th 450/420 cost $1.40 at Friday’s close (and I just put in an order at $1.50 for tomorrow, lets see if that fills) and potentially pays $30 (20-1) should this breakdown materialize. One could certainly go higher up in strike price for farther out in duration for a more likely but less lucrative payout, but I figured that Tesla either gets saved here in short order (even if that means churning) or loses the last support at ~$560 and takes a big leg down.
As always - Elon’s pump is always out there, this is never advice, and thanks for reading.
Elmo