Trading Analysis: Can Tesla’s battery announcement supercharge its shares?
01:00, 29 april 2015
· Av CMC Markets
On April 30th Tesla Motors in planning a new product announcement that could potentially be a game changer for the company. To date, its growth has hinged on the success (or failure) of one product, electric sports cars.
Thursday, the company is expected to announce a new battery product for home and business use, which could take it from being a one trick pony to a company with broader applications for its alternative energy technology.
In recent quarters, the company’s struggles with its cars (not uncommon for a company still in the early adopter phase) have weighed on its shares which have fallen from a peak near $300 last summer to a low near $180 in late March. For the last month, however, the shares have been on the rebound as traders have started to anticipate Thursday’s announcement.
The big question now, however, is whether the new product line has already been priced into the shares. Since bottoming out last month, the shares have added $6.6 billion to their market cap. On the other hand, the shares are trading 21% below their 52-week high, so there would appear to be more room to rebound.
Some factors traders may look for in the announcement include:
1) Is this going to be another niche product, or are they aiming for a wider mass market audience this time around?
Despite all the hype and attention, Tesla’s car sales are still a very tiny fraction of the US auto market. Will the battery application be targeting niche uses again or are they gunning for a wider market this time.
2) What is the potential market size for this battery technology? What is the price range?
How big could this product be? Can it justify the recent market cap increase?
3) Do they have any orders in hand?
A big order from a major distributor could go a long way to determining if this product may be successful out of the gate or if it could take time for sales to ramp up.
4) When is it expected to go on sale?
The sooner it can get to market the sooner it can start to affect earnings. Is this a market ready product or something in the development stage that could be years away?
5) What does this mean for the gigafactory project?
Tesla is planning to build a multibillion battery production plant. Having multiple product lines could reduce some of the perceived risks surrounding the project and enhance its viability.
Focus Chart: Tesla Motors
From September through March, Tesla shares were under distribution, steadily declining in a falling channel. A month ago, the shares hit a new low that was not confirmed by the RSI, a positive divergence that indicated the downtrend was running out of gas.
Earlier this month, a breakaway gap signalled a significant change in sentiment, and the shares haven’t looked back since, climbing up from a low near $180.00 up over $230.
Recently, the shares have been trading in a $224 to $237.50 channel between the 38% and 50% Fibonacci retracements of the previous downtrend. A positive response to the report could spark another breakout with next resistance in the $250-$251 area where a round number and the 62% retracement level converge. A successful product announcement and launch could potentially send the shares back toward a retest of their 52-week high over the longer term.
On the other hand, if the announcement turns out to have been overhyped, the shares could drop back with initial support possible near $224 or $207 both Fibonacci tests.