Just when it looked like the company’s optics issues were in the rear-view mirror and investors could start focusing on improving fundamentals, Tesla (NASDAQ:TSLA) was stung again by yet another Elon Musk tweet. This time, Musk went after the Securities and Exchange Commission — the very committee he settled with a few days prior. In response to the tweet, Tesla stock dropped, and has now wiped out essentially all of its post-settlement gains.

Bad optics have been a real issue for Tesla stock over the years. Every time it seems like this stock is going to finally make a move higher, something happens completely unrelated to the fundamentals that throws stock in Tesla off course.

This happened to TSLA stock after the Q2 earnings report, wherein it jumped on confidence regarding a production ramp and profitability, only to have all those gains and more wiped out by Musk’s now infamous “funding secured” tweet. This also happened with the Q3 delivery report, wherein the Tesla stock price rallied in a big way leading into the report, and then dropped despite strong numbers because of troubles with the SEC.

In other words, Tesla stock isn’t being driven by fundamentals right now. It’s being driven by optics.

That’s a shame. Every single big picture, fundamental trend is moving in the right direction for Tesla. But, Tesla’s stock price doesn’t reflect this because the optics remain ugly.

This will remain true for the foreseeable future, meaning TSLA stock won’t breakout to new highs anytime soon. But, I think the Q3 earnings report due at the beginning of November could change things. I expect profitability in that report, and profitability could be a big enough fundamental catalyst to drown out all the noise surrounding this stock.

Indeed, I think that report could be the catalyst for TSLA stock to hit $400.

Bad Optics Cloud Improving Fundamentals

Beyond all the Musk, Twitter and SEC noise, Tesla’s fundamentals are dramatically improving.

Every single big picture trend is moving in the right direction for Tesla. The company is ramping production and producing over 5,000 Model 3 vehicles per week. Delivery rates are also accelerating, and the company delivered twice as many vehicles in Q3 and it did in Q2. EV battery costs are falling, and with production and delivery now hitting scale, volume production plus lower input costs makes profitability look like a real possibility. EV adoption rates continue to head higher, and Tesla’s Model 3 is leading the EV charge.

Overall, all the fundamental trends are improving for Tesla. But, Tesla’s stock price doesn’t reflect this because improving fundamentals are being drowned out by optics related issues.

This has been the trend for a while, and will remain the trend for the next few weeks. Until a major fundamental catalyst arrives to switch the market’s focus, Tesla stock will be range bound between $250 and $300.

The Q3 Report Could Change Things

I think Tesla’s third-quarter-earnings report could change the game when it comes to Tesla stock. Specifically, I think Tesla will report a profit, and that this will send Tesla stock to a new permanently high plateau of around $400.

Profitability looks very likely in Q3. Battery costs continue to fall, so automotive gross margin should continue to improve towards 25% and higher. Other auto manufacturers operate around 20% or lower gross margins, and they are profitable. The profitability comes the fact that volume vehicle production drives the opex rate lower, so 20% and lower gross margins are enough to sustain profitability. Tesla is finally getting to volume production levels. Thus, considering Tesla has markedly higher gross margins, profitability looks likely in Q3.

Tesla has reported a profit only twice before. Each time, the ER was a catalyst for a huge rally in the stock. If you look at a long-term chart for Tesla stock, you will see two huge rallies. One from under $100 to over $200, and the other from under $200 to above $300. Both of those big rallies started with a profitable quarter.

I think we see the same type of rally this time around. A profitable quarter is a big enough catalyst to drown out the noise surrounding this stock. As such, a profitable quarter could be the one thing strong enough to send Tesla stock to new highs.

Bottom Line on TSLA Stock

The fundamentals underlying Tesla are dramatically improving, but the TSLA stock price doesn’t reflect this reality because it is being weighed down by bad optics. Eventually, those bad optics will phase out and TSLA stock will trade higher on improving fundamentals. The Q3 report could be the catalyst that sparks this transition.

As of this writing, Luke Lango  was long TSLA.