Shares of Tesla (NASDAQ:TSLA) were on the move Tuesday, rallying more than 5%. Tesla stock held up surprisingly well last week and is now moving higher after a judge confirmed that the settlement between CEO Elon Musk and the SEC is fair and withstanding.
After rejecting the SEC’s proposed settlement, shares of Tesla sank in late September. The next day, shares ricocheted higher after Musk came to terms with the SEC, which was investigating Musk for securities fraud thanks to his “go-private” tweet. He didn’t take too kindly to the SEC on Twitter (NYSE:TWTR), but that’s for another discussion.
The settlement was subject to a judge’s review, which some thought would be considered too soft on Musk. The judge ruled that it is not too soft and therefore, Musk will resign from the chairman role and maintain his CEO title. He’ll also pay a $20 million fine and Tesla will hire two independent board members.
The news was good for obvious reasons, in that Musk will remain at the helm. More so though, Tesla will get a deeper bench of board members, which will hopefully add depth to the C-suite. It’s my view that Musk desperately needs more members on his management team to help take Tesla to the next level.
A Deeper Look into Tesla Stock
Everything was seemingly in order before that “go-private” at $420 tweet really threw things into disarray. It led to a host of confusion, from the board to the stock exchanges to individual investors. It also cost the stock a beautiful run.
Whether it was going to rally through long-term resistance or fail anyways, we will never know. But what we do know is that Tesla has plenty of debt coming to the end of its terms and that’s something that will cause concern in the not-too-distant future.
If Tesla stock is not above ~$360 by the end of February, it will owe $925 million on its convertible debt obligations. Over that price and the automaker can use stock to pay for its obligations. $90 per share away from that mark and Tesla could be in trouble if it doesn’t get there.
Tesla stock rallied sharply on its Q2 earnings report in August because the cash burn wasn’t as bad as expected ($739 million vs expectations for $881 million). However, cash shrunk to $2.23 billion (just over $1.25 billion when subtracting customer deposits) while total debt rose to $11.6 billion.
Management previously said it expects positive cash flow and profitability in Q3 and Q4. While deliveries and production were strong for the quarter, Musk suggested that Tesla was likely just over break-even for the quarter. While an improvement, it would still create an issue for its obligations less six months from now.
The upside here is that Tesla is at break-even operations and producing a ton of cars. In Q3, the 80,000 vehicles it produced were a 50% improvement from Q2. If someone can get creative (and someone will at least try)Tesla can find a way to refinance or engineer its coming debt payments.
Trading Tesla Stock
The demise of Tesla is, at this point, somewhat exaggerated. Tesla has become a powerhouse in the electric car industry and its Powerwall product is impressive.
Further, even after Porsche, Audi, Mercedes and other high-end automakers have had years to put out a better product than Tesla, the best they can muster are vehicles that are kinda sorta close to a Tesla vehicle and they’re not even on the road yet.
Tesla’s financials are a mess and so is its delivery system, but with or without some type of restructuring down the road, the Tesla brand is likely here to stay.
What does that mean for the charts? Well, short of the restructuring/possible protection status Tesla may need in the future, it should mean good things. Tesla stock held where it needed to on the long-term chart (below), but could see some resistance on the short-term chart (above).
Watch out for the Tesla earnings report, Nov. 7. If Tesla gets above it’s 20-day moving average, a run to the $300 to $310 area is possible. If that happens ahead of earnings, it’ll be hard for me to be a buyer ahead of the news like that. Especially with how much overhead resistance is in that range.
That resistance can be seen n the long-term chart too. But see how TSLA stock held that 200-week moving average? The more time it spends above this mark, the better. Further, there’s a sort of “line in the sand” near $245. I wouldn’t want to be long Tesla should that level give way.
Keep these levels in mind as we move forward.