step_ahead_ofthemarket
Long

TESLA RE-VALUATION UPDATE|Q3 EARNINGS DISSECTION|+ESG INVESTING+

NASDAQ:TSLA   TESLA INC
The Q3 earnings report was surprise to everyone, kudos to Musk and his team for a job well done. There are still some questions, but it seems that most of the fundamental issues that Tesla had since the start of the year, have been solved.
****Here are the key points from the Q3 earnings report and the revaluation with the addition of ESG factors:
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1. Increase to 22.8% Gross Margin(from 18.9%) and an Operating margin of 4.1%(from -2.6%). Argument: Improvement in their production line, Tesla's becoming more efficient at producing vehicles. (Ref #2)

2. Large improvement in cash flows, mostly because of cost cutting(15% "magical" drop in expenses); at the same time slightly lower revenue. More importantly their investments are having faster payoffs than expected (China expansion and model Y development, both ahead of schedule).

3. Tesla is becoming more diversified as there are more indications that they're successfully developing their energy storage projects. Revenue from project unrelated to auto sales grew from 368(Q2) to 402 mil(Q3), and will continue to expand in 2020.(Ref #3)

4. Obviously, since cash flows are better, so is their EBITDA(Q2-371 mil, Q3-876 mil), this is where their good EPS figure came from. Furthermore, there are indications of deferred revenue that will be realized in the following quarters."We also expect to
gradually release nearly $500M of accumulated deferred revenue tied to Autopilot and Full Self Driving features."


5. US EV market seems to be saturated, but there could be an opportunity for more demand to kick in as the current ESG investing trends continue based on the current DIM(Green new deal) momentum. Tesla's European expansion will take time and won't be as profitable as the Asian expansion. Chinese expansion opportunity without a doubt will have a large long-term payoff.(Ref #4)

***Most importantly: The rest of the market could feed off the Tesla surprise. No doubt, it's been the best and most bullish surprise for the earning season so far. In times of rising recession fears, Tesla doing well as the market leader in a growing EV automarket, definitely is a major benefactor to the sentiment overall.***
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Have to say that I've learn to, not be dependant on wall street analysts when trading highly volatile growth stocks(extension from my previous post). But then again, going off of management's' guidance, they will always have the incentive to manipulate the numbers. It can be said that their bad start of 2019, was an existential threat to Tesla , so Musk and the team got to work. There are still some questions about profitability, but the tricky part is that Tesla's investors are motivated because of ESG factors, not by profitability. Profitability matters less to these type of investors, since the markup in valuation from having a high ESG* score, could improve long-term returns in such investments as Tesla . At these low rates, even if profitability is low, Tesla could keep financing their investments and keep growing with good fundamentals. Additionally, taking their positive ESG score into consideration- the long term looks bullish . I think that more and more portfolio managers will sacrifice potentially higher sharpe ratios in order to acquire stocks with higher ESG scores(some trade-off), as investor preferences continue to change and become more and more adaptive to the increasing popular ESG investing trends. (Ref #1, great paper on ESG's impact on investing.

This is the update on Tesla post-earnings. Learned my lesson(my bad), short interest was just too damn high to ignore it pre-earnings.
-Step_ahead_ofthemarket-

*ESG stands for Environmental, Social, Governance.
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>

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References and Disclosure:
1. https://papers.ssrn.com/sol3/papers.cfm?... ( ESG Investing paper, released about a week ago)
2. https://ir.tesla.com/static-files/47313d... (Q3 Earnings report)
3. https://hypercharts.co/tsla (All the financials)
4. https://www.youtube.com/watch?v=zMcnhirm... (Good video on earnings and conference call)

*https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
Full Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Comment: Ending the day in green. Algorithms were very busy today and post-market yesterday. $TSLA could stop for 283 first, before going up further.

-Step_ahead_ofthemarket-
Comment:
Just a short update. Trying out a log chart on Tesla, seems that the pitchfork, ichimoku cloud and MA's are fitting better.
Comment: Back within the drawn triangle. Currently on Wave IV. Wave V will depend on any China/US trade news.
Comment: Based on recent news, let's assume that a deal will go through/

1. Seems that target 1 (344) could be reached sooner than expected.
2. By the end of the year, considering if there are no bad news from Tesla and their battery probe goes through without any issues, Tesla could aim for target 2 (365) at the top of the range.

-Step_ahead_ofthemarket-
Comment: Target 1 at the 0.786 ret level($344) reached.
A bit sooner than what I expected, but it's just a matter of trade news.
Comment: Truck looks more like a boat build by a toddler. It's not as much about the broken glass, as much as it is about the design.

Price reacting accordingly. The targeted zone (344-365) was reached, now expecting Tesla to trade in a horizontal range below 353 for a few weeks.

-Step_ahead_ofthemarket-
Comment: https://twitter.com/ihors3/status/120478...

Short interest getting quite low. It could perhaps go even lower, but with the overall macro environment, I'd rather choose to stay contrarian here.

Expecting a horizontal price action for some time, that will help determine the trend for $TSLA in the next 2 quarters.

-Step_ahead_ofthemarket-
Comment:
New updated momentum channel for $TSLA.
Comment:
Momentum strategy unfolding.

Comments

Look for even more up on this one.
+1 Reply
@hope.bleecker, Thanks for the comment! https://twitter.com/ihors3/status/1204780083019419648/photo/1

Perhaps in 2020. For now, let's see how far down short interest in $TSLA will go. Getting a bit too low for my long contrarian confidence. All the good stuff have been priced in, there should be some reversal or at last horizontal movement before going further up!
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@hope.bleecker, Updated momentum channel showing the potential upside on a log chart. :)
Reply
well done this is an excellent view of the situation and the wall street position. But still be prepared for some pullback this stock is too sentiment driven and sentiments change....
+1 Reply
@PhilippeDelpCFA, Thanks for the support, improving with every chart! Currently looking at the LN chart, seems that it's broken major resistances around 280, and as long as it stays above momentum will drive the price higher. Short interest is still very high https://www.marketbeat.com/short-interest/positions/latest/
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step_ahead_ofthemarket step_ahead_ofthemarket
Update, shorts got screwed because of the "good" news on trade and are covering. 344-365 target by year end still stands
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