Investors who have been patiently waiting for Tesla Inc (NASDAQ:TSLA) stock to come down from its lofty perch to a more familiar support level in a bid to gain fresh entry points could be outta luck. After weeks of drifting lower, TSLA stock has managed to reverse course and is now on a fresh up leg. Tesla stock has racked up gains of 8% over the last 10 days and it is trading just 4% below its 2017 high.
TSLA stock is up 22.6% in the year-to-date.
New Era for TSLA Stock
Trouble for TSLA stock begun in late February after the company delivered a disappointing earnings report. Following the report, Tesla stock suffered a massive 7% one-day loss that effectively ended a powerful 11-week bull run that had culminated in a 60% gain.
The post-earnings breakdown created an ominous top after the stock had retested major resistance near 2014, 2015 and 2017 highs. Long-term Tesla bulls might concur with sentiments by fellow Investor Place contributor Dana Blankenhorn who observes that TSLA stock has been range-bound over the past three years. Dana says to use $250 as a sell signal or to short the stock and $200 as a buy signal or to go long.
But a deeper pullback now looks unlikely. TSLA stock has been showing solid support around the $237 to $241 zone, which suggests that the rules of the game have now changed. Perhaps that should hardly come as a surprise considering that we are now seeing the first innings of Tesla as a mass manufacturer of EVs as opposed to a luxury car maker.
TSLA stock has mainly been range bound in the past due to the company’s unreachable deadlines, including a 3-year delay for Model S.
But Tesla is a different company now. The company managed to kick off production of Li-ion batteries at its Gigafactory in January ahead of schedule and also successfully launched a new Autopilot system as promised. TSLA is still very much a startup, but seems to have learned from its past missteps.
With the excitement surrounding the launch of Model 3 later in the year, investors should not wait for the stock to fall dramatically even if it misses delivery estimates in the coming quarters.
Tesla Stock: Cash Burn Worries a Long Way Off
Tesla bears have long argued that it’s only a matter of time before the company suffered a severe cash crunch that would decimate TSLA stock. Tesla is a serial big-time spender that has been burning cash for fun with little to show for it in the way of profits. The company announced that it plans to spend at least $2.5 billion during the first half of the year to bring its manufacturing facilities up to speed in readiness for Model 3.
This in effect means that Tesla will have spent $10 billion on R&D since 2014. For some perspective, mature incumbents General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) spent $8.1 billion and $7.3 billion on R&D in 2016 and sold 3.9 million and 5.5 million vehicles, respectively. In comparison, Tesla sold just 76,000 vehicles last year. Tesla’s market cap is now approaching that of the two companies, and investors can be forgiven for feeling jittery about Tesla’s impending capital raise(s).
But the company recently quelled any such fears — at least for the foreseeable future. Tesla has just successfully completed a $1.2 billion capital raise through a mix of new shares and convertible debt. That was considerably less than what Wall Street was modeling for, meaning cash burn might not be as bad as previously imagined. TSLA sold 1.3 million shares at $262 per pop to raise $350 million, amounting to less than 1% share dilution. The balance came from convertible notes that will be due by 2022.
Investors can now rest assured that TSLA’s cash position is out of the danger zone. Deutsche Bank estimates the EV maker will exit 2017 with $1.8 billion in cash, good enough to provide a comfortable cushion.
Bottom Line on TSLA Stock
Deutsche Bank has projected that Tesla is likely to deliver 22,000 Model 3 units in 2017 and 250,000 units in 2018. So the company might not need to make more trips to the secondary and capital markets during the current year. Tesla though intends to jack up Model 3 production rate from 5,000 units per week in 2017 to 10,000 units per week in 2018, which implies that another big capital raise in the coming year cannot be ruled out.
The good thing though is that by this time, TSLA will officially have changed its status to a big-time player. Tesla CEO Elon Musk says Model 3 is designed for manufacturing and that the company understands manufacturing a lot better than it did in the past. Just don’t hold your breath for TSLA stock to fall back to earth.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
