With all due respect to shocked shareholders, if the fact that Tesla Inc (NASDAQ:TSLA) fell short of its Q4 delivery goals for the Model 3 surprised you, then shame on you. You just haven’t been paying enough attention to the saga that is TSLA stock.
So far it hasn’t really mattered much, to be fair. The TSLA stock price fell a little on Wednesday when the news first broke, and shares fell a little more on Thursday before staging a partial recovery (with continued lip service from Wall Street). It looks like, in the grand scheme of things, it won’t really matter.
I’m not so sure Tesla stock is going to escape unscathed, though. And it’s not because the Model 3 shortfall is going to fester in traders’ minds. Rather, TSLA stock is apt to fall in the future because that’s what the stock does.
The good news is, Tesla stock is moving in pretty predictable ways.
A Shortcoming, Right on Cue
Here’s the short version of a long story. Last quarter, Tesla delivered 1,550 Model 3 cars, falling well short of the 4,100 investors were collectively expecting to be delivered. All told, the company made 2,425 of the ballyhooed, mid-priced electric vehicles, versus the planned pace of 20,000 per month CEO Elon Musk was touting around the middle of last year.
Wall Street, for the most part, was undeterred. Baird research analyst Ben Kallo defended the company, saying:
“Given that TSLA received over 400k Model 3 reservations with essentially no marketing, we believe potential demand for the vehicle is likely underestimated, and think TSLA could significantly increase demand through its own advertising in the future.”
Other analysts who’ve been bullish on Tesla until this point also remained so.
That may be because they know this is nothing new. Musk has been overly optimistic in the past, prompting him to offer assurances that were never going to be met. Indeed, the company’s chief has so consistently overpromised and underdelivered, that it’s become the norm rather than the exception.
Trading TSLA stock has largely become a dance aimed at figuring out how the stock rallies on promises and stumbles on shortfalls, which shines the spotlight in the stock’s current swing. When all is said and done, you could almost figure out what the headlines are at any given time just by watching the chart, rather than the other way around.
Getting a Bead on TSLA Stock
OK, now what?
First and foremost, take all Tesla stock predictions with a grain of salt, including mine. Contrary to what most of the bullish and bearish arguments would suggest, the game here has been and continues to be figuring out how people are going to feel about Tesla at X point in the future. Funny thing is, the chart’s history tells us a whole lot about when and where those opinions are likely to change.
If you read my Oct. 26 and Dec. 6 thoughts on Tesla, then the chart below should look familiar to you. TSLA shares are still bouncing their way around within the confines of Fibonacci retracement lines. As nice as it would be to think headlines and results are pushing the stock around, it’s closer to being the other way around.
Click to Enlarge
More importantly, right now Tesla stock remains in limbo between two major lines in the sand: the double-top peak around $389 and the 38.2% Fibonacci retracement line around $250.
Given the chart’s history and technical situation, the retreat from last year’s peak to the $250 level has already been pretty well scripted in investors’ heads. Beyond that (though I doubt it will matter much), there’s a floor around $175.
You’ll also note that the $287 area — a former ceiling between 2014 and 2017, as well as a gap level from early April — has yet to be tested as a floor. Maybe, just maybe, the stock only needs to fill that gap before rekindling the bigger uptrend.
Obviously there’s no guarantee any of those levels will matter. I’d be very surprised, however, if they didn’t somehow come back into play. And, somehow I get the feeling that the headlines will start to turn optimistic again right as one of those potential technical floors is revisited.
Bottom Line for TSLA Stock
It’s a premise that drives Tesla’s supporters and detractors crazy. Both sides of the table generally use some sort of fundamental argument to support their case. There are no fundamentals to speak of here, however, good or bad.
While Tesla may be a “normal” company someday in the future, this is not that day. Tesla is a premise, plain and simple. The Model 3 production shortfall is mostly irrelevant, as it wasn’t going to push Tesla to profitability anyway. Nobody really knows how many cars the company will need to produce to reach viability, not even Elon Musk.
That’s OK. Let’s not pretend like that isn’t the case, though. The traders who know what’s really going on here are playing the charts and the headlines rather than playing the company’s results, and they’re doing surprisingly well by doing so.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
