Tesla stock started to pull back on Tuesday and has continued its slide today, but this could be just the beginning, according to one chart technician. Meanwhile, bulls continue to assign sizable valuation to parts of the business that don’t even exist yet, and some interesting data regarding the company’s EV sales in China has emerged.
Tesla stock chart suggests a slide
CNBC‘s Jim Cramer spoke with Bob Moreno, the chart technician in charge of RightViewTrading.com. Moreno noted that Tesla stock has certainly been hot lately, but he thinks that’s about to end. Cramer, host of Mad Money, believes that pullback Moreno is forecasting “could be your best buying opportunity in ages” for Tesla stock.
The chart technician based his call for a pullback on a pattern that keeps cycling through on the Tesla stock chart. The shares seem to follow cycles that last 43 weeks. For a period of time, they don’t break past previous highs. Then the stock also tanks, followed by a period when it skyrockets right back up. At the end of the 43 weeks, the cycle starts again, and guess what? We’re at the end of the last 43-week cycle, so it seems we could be ending a period of weakness in Tesla stock, at least if Moreno’s prediction is correct.
Yarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More
Rinse and repeat in Tesla stock
He said almost every time, Tesla stock nears the $285 level at the end of the 43 weeks and creates what technicians refer to as a “high wick or upper shadow exhaustion candles,” according to CNBC. That just means that the shares hit levels during the week but isn’t able to hold onto them.
Moreno believes that the 43-week cycle has repeated four times and suggests that Tesla stock is about to start one more cycle before it rebounds. He doesn’t believe the EV maker’s shares will approach $285 again until sometime around November and predicts that they could even tank to as low as the $160 range before rallying. And if the stock doesn’t surpass the $285 ceiling within eight months, he believes it could go through another 43-week cycle of the same pattern.
Most upside in Tesla stock from Mobility segment?
Morgan Stanley analyst Adam Jonas is one of the most notorious bulls when it comes to Tesla stock, with his Overweight rating and huge $305 price target on it. And while Moreno is pointing out chart technicals that suggest a pullback in the shares, it’s full speed ahead with Jonas.
Perhaps the most interesting thing in his March 8 research note is that he says “over 100% of the upside from the current price to our $305 target can be accounted for by the value of Tesla Mobility, an on-demand and highly automated transportation service we anticipate to be launched at low volume in 2018.” In other words, most of the value in his price target comes from a segment that doesn’t currently exist and might never exist. There’s no denying that Tesla is a speculative stock, but even this seems extreme, particularly when he’s assigning “zero” value to the stock from the Tesla Energy business, which does currently exist.
Tesla’s China sales soared… but it’s a secret
Jonas also wrote about the potential Tesla may enjoy in China in the long term, although he doesn’t seem overly convinced about this. He describes himself as “increasingly in the camp that the types of cars sold in an Auto 2.0 paradigm and services provided in a shared mobility model may be limited to local producers in a highly regulated ecosystem.”
Because of this, “We would significantly temper an investor’s view of how much China could account for Tesla’s (or any foreign auto firm’s) long term profitability and valuation.”
And here’s something else that’s interesting. Forbes contributor Bertel Schmitt noted that JL Warren Capital, a firm which focuses on China, told clients in a research note just how much China contributed to the EV maker’s sales last year. It stems from Tesla’s report that $1.065 billion of its revenues came from China last year, a note which was buried in the company’s annual report to the Securities and Exchange Commission.
And for some reason, the company doesn’t want investors to know how much revenues come from China, instead preferring to highlight things like awards it received from a couple of German magazines. Tesla didn’t even say a single thing about China in its fourth quarter letter to shareholders. No one even asked about China on the earnings call.
JL Warren reportedly noticed at least by the middle of 2016 that the company suddenly started to ship lots of cars to China, reports Schmitt. The firm cited data from the customs bureau for that tidbit, and Tesla’s shipments to China rose each month last year. Suddenly in January, however, the EV maker’s shipments to China plummeted, and JL Warren management advised their firm’s investors that Tesla’s China business is at risk “if the government decides to alter or terminate the favorable policy to foreign electric car makers.” And if that happens, they feel the company’s sales there will plummet.
Shares of Tesla stock closed down 0.69% at $246.87 on Wednesday.