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What the news isn’t saying about Tesla

09 December 2022

Tesla shares are still down 75% from the January 2022 high of $402 (USD). And with Twitter bankruptcy rumors and global vehicle recalls, the future for Tesla and TSLA might seem uncertain to traders not digging deeper.

Tesla in the news

The news is not positive for the Texas-based EV manufacturer. China filed a recall plan that forces Tesla to run software updates on nearly 68,000 Model S and Model X vehicles, all of which were produced outside of China.

The Chinese state regulators said the models were recalled because of a software glitch in the battery management system, which could sometimes force the vehicle to abruptly stop. Tesla has had 20 recall statements this year alone, most of which Tesla was able to update and resolve remotely.

In addition, 13,000 Model 3 units were recalled for a physical issue regarding seat belts, most of which were manufactured in Tesla’s Shanghai factory.

Both revenue and the news paint a dirty picture for the EV manufacturer. During such times, a massive cash reserve keeps big companies alive, but the bad news keeps coming. 

Twitter debt causes bankruptcy rumors

Elon Musk says his $44 billion Twitter takeover may end with a bankruptcy filing. Musk admitted Twitter has suffered “a massive drop in revenue”, losing as much as $4 million per day.

Some companies have paused their ad spending on Twitter due to uncertainty about where the company is headed. The exodus puts Twitter under pressure until advertisers grasp the new business model. Advertisers may eventually return to Twitter if they feel the company has a future and users are staying, but that could take months to confirm.

In the meantime, Musk could raise funds or buy back debt from lenders to give Twitter a lifeline, but at the moment it looks like Twitter could become the next social media giant to follow Google+ and MySpace.

In desperation, Twitter moved quickly to reduce costs, including cutting its staff in half. Salaries account for a large percentage of Twitter’s expenses. The company had 7,500 full-time employees at the end of 2021, plus part-time and remote, up from 5,500 the year earlier.

The current layoffs of 3,700 people could save the company around $860 million a year, an estimated savings of about 15% of Twitter’s $5.5 billion in costs and expenses last year.

Before Musk’s acquisition, Twitter debt totaled $596.5 million. Now, the company will have to pay at least $9 billion in interest to banks over the next 7 years when the $13 billion in debt matures. The interest payments alone are substantial, as high as $6.3 billion over the past 8 years.

To add to the pressure, Apple and Android are considering the removal of Twitter from their phones, citing hate speech and cyberbullying as the justification. Twitter’s future in Apple and Google app stores is in question due to Musk’s commitment to “free speech”, and a more relaxed approach to content moderation. Unless these three giant companies can achieve a compromising agreement, the Twitter logo might be out of app stores by 2023.

“I certainly hope it does not come to that, but, yes, if there is no other choice, I will make an alternative phone,” said Musk in a Tweet.

So far, plenty of doom and gloom for both Tesla, Twitter, and Musk in general, which suggests TSLA would be a bad buy—but it’s not that simple.

Tesla performance

Sentiment speaks loud, but money talks too, and revenue tells a different story. Tesla’s Q3 earnings report beat earnings-per-share (EPS) expectations by 10% at $1.05 per share, although company growth was less inspiring, with sales below expectations by 4% on a revenue of $21.45 billion, despite a record 343,830 vehicle deliveries over the quarter.

Year over year (YOY), Tesla earnings are now expected to rise 79% back up to $4.05. Fiscal year 2023 earnings are expected to rise another 30% at $5.29 per share. Growth is expected to climb 39% in 2023 to $115 billion, more than quadruple the 2019 sales of $24.57 billion.

TSLA showed signs of a rally this month after better-than-expected CPI numbers gave the broader market a nice boost, contrasting TSLA’s recent 52-week low. Traders may consider adding Tesla shares to their portfolio at the current bargain price, and some analysts promote that bullish message. Morgan Stanley analyst Adam Jones said $150 seems likely before the end of 2022. A bullish yet questionable forecast.

TSLA technicals

The 100-day moving average has been below the Tesla stock’s 200-day moving average since May 26, and there is no technical reason to think TSLA stock has found the bottom yet. The 50-day moving average (MA) crossed back beneath the 100-day MA for the first time since August, and the Relative Strength Index (RSI) hasn’t shown strength for over two months.

Technical analysis suggests the downtrend will continue. But trends eventually end, rallies rise unexpectedly, and those who jump on the money train price rally before it leaves the station are the ones holding first-class seats and the greatest profits. And, we all know who those people are.

Actions speak louder than words

If Tesla was a steaming pile of stock, as suggested by media and technicals, then nobody with any knowledge of trading would touch it, right? So, the fact that legendary investor George Soros has tripled his TSLA holdings in the past 3 months gives us all pause for thought.

Soros’ Q2 Tesla holdings were disclosed at 29,883 shares. Soros now owns 89,647 shares valued at about $16 million.

Soros’ bullish views on TSLA seem to be shared by Citigroup analyst Itay Michaeli, who noted that Tesla is now poised to benefit from the Biden administration’s Inflation Reduction Act (IRA). A very positive message for TSLA that clearly contrasts everything else going on with Tesla.

Should you trade TSLA?

With mega factories in Berlin and Texas both ramping up their production and deliveries, it’s believed that Tesla will be able to deliver up to 450,000 units in the fourth quarter. This would be a new company record, and would also show just how big Tesla is becoming.

Electric vehicles (EV) are still a relatively small part of the automotive industry, but it has massive global support and potential to grow, and Tesla is the one setting all the benchmarks.

TSLA still appears poised for growth, and earnings estimates are up from last quarter. Patient traders could see significant returns as the new year comes around, and there’s no denying that TSLA fits into the “Buy low, sell high” paradigm.

If the media start publishing bullish statements, you might be wise to make a new analysis of TSLA, but keep your perceptions neutral and avoid “seeing what you want to see.” There are a lot of strings pulling on TSLA right now.

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