Trading Analysis: Can Tesla’s earnings keep its recovery rally going?
Coming hot on the heels of its big battery product line announcement, Tesla Motors is planning to release its latest earnings report after US exchanges close on Wednesday May 6th.
The company has recently expanded its horizons into solar-powered batteries for homes and businesses but the direction of shares in the days to come will be dependent on the outlook for its core electric cars business. The company is expected to make a loss but shares can still push higher if the company maintains or expands its guidance on vehicle sales this year.
There is considerable excitement over Tesla’s new ‘SUV crossover’ Model X, its production can’t be delayed because it is factored into the annual sales target. Sales in China were a sore point in Q4 of 2014 so after a management shake-up, CEO and founder Elon Musk will be keen to demonstrate some improvement in what could be Tesla’s biggest market.
Last week’s announcement of a new line of batteries for homes, businesses and utilities called PowerWall that will enable users to store energy produced by green but intermittent means like wind and solar for use when generation isn’t possible has been pretty well received by the street overall. Considering that the shares had rallied for a month before the announcement a correction was to be expected. The correction that did ensue was pretty tame overall, and the shares have been consolidating since then near their highest levels of 2015. The question now is if earnings will help the recovery along or stop it dead in its tracks?
The street is expecting the company to report a $0.50 per share loss for the quarter on sales of $1.04B as it tries to shake off a series of recent disappointments. For example, last quarter, Tesla lost $0.13 per share way under the $0.32 profit the street had expected while sales of $1.09B fell short of the $1.22B street estimate.
Before speculation about the new battery product line kicked in about a month ago, Tesla shares had been falling to reflect the struggles of the company’s core electric sports car business. With the battery news now out and the launch still a few months away, focus this week may turn back to the car side with traders looking for evidence of a turnaround. If the car side continues to struggle, it could cast a cloud over the potential for the home and business battery business as well.
Focus Chart: Tesla Motors
From September through March, Tesla shares were under distribution, steadily declining in a falling channel from just below $300.00 to just above $180.00 a 40% drop in six months.
Since the beginning of April, the shares have been under renewed accumulation, advancing in a step pattern of rallies followed by consolidation at higher levels. After spiking on the battery announcement rumours, shares fell back a bit on the news but lately have been consolidating in a channel between $224.10 and $235.50 between the 38% and 50% retracements of the previous downtrend.
If the earnings report comes in better than expected, the shares could break out of this range and potentially take a run at $250.00 where a 62% Fibonacci retracement and round number cluster. A failure could knock the shares back toward $224.00 or the next Fibonacci support near $207.50 depending on how much confidence may be affected.