Skip to main content

The Tesla Dichotomy and How to Respond to It

Should we buy Tesla because of the electric carmaker's unique potential or sell its shares due to its unique problems? Perhaps the chart can help clarify the situation.
  • Author:
  • Publish date:
Comments

"My Twitter is pretty much complete nonsense at this point."

--Tweet by Elon Musk, Tesla CEO, April 19, 2019

Electric vehicle manufacturer Tesla Inc. (TSLA) is generating excitement with its autonomous driving capabilities. In a special presentation on Monday, Tesla announced its timetable for driverless vehicles, and for a driverless Uber-like service.

The vehicle would handle driving duties, allowing the driver to become a passenger. When not in use by the owner, the autonomous car can become a taxi. The multi-tasking opportunities are limitless. Thanks to this technology we eventually could view autos as an appreciating, rather than depreciating, asset.

Unfortunately, with Tesla, it seems that every positive development has a negative counterpart. On Friday, there was a major disruption in Tesla's top offices.

According to a Securities and Exchange Commission (SEC) filing, two of Tesla's 11 directors will leave this year, with another leaving next year and a fourth leaving by 2021. The news comes just four months after Tesla added two new board members as part of CEO Elon Musk's settlement with the SEC.

The sweeping changes are emblematic of the chaos surrounding this company. Earlier this year, Tesla announced that it would close most of its retail outlets, then reversed its decision a few weeks later.

How demoralizing is that news to Tesla's retail sales force? How many sales will be lost because those workers now realize they're on borrowed time? At any other company, heads would roll for such poor execution. At Tesla, chaos seems to be par for the course.

Meanwhile, Musk has been tweeting up a storm of nonsense. He isn't revealing information that would violate his SEC agreement, but he isn't exactly inspiring confidence that he's focused on running Tesla.

This brings us to the Tesla dichotomy. Should we buy the stock because of its unique potential or sell it due to its unique problems? Perhaps the stock's chart can help clarify the situation.

Since mid-December, when Tesla topped out at $377 (H), the stock has formed a series of lower highs. Tesla's 50-day moving average (red) is acting as resistance and has short-circuited several rallies (black arrows).

Image placeholder title

Tesla Inc. (TSLA) Chart: TradeStation

View Chart »View in New Window »

Tesla is creeping toward major support at $250 (black dotted line), the scene of two big bounces last year. Perhaps another bounce is in the cards, but even the staunchest Tesla supporter would need to be concerned about the stock's trend and recent underperformance.

The S&P 500 has gained 16% year to date while Tesla has lost nearly 21%. There's no way to rationalize this underperformance. Tesla needs to close above $285 to break the series of lower highs.

This would create a higher high and would push the stock above its 50-day moving average (red). That's the very least I'd need to see before I'd consider buying this stock again.

At the time of publication, Ponsi had no positions in the stocks mentioned.