Not many companies have not dropped a couple of % points this last couple of weeks as risk mounts up around the globe. It started with poor economic data, then it moved on to debt defaults from China with possibilities of contagion around the globe. Now it is the political wrangling of the USA opposing parties and the will they, won’t they, uncertainty around raising the debt ceiling.
Weekly Investment Idea – Tesla
When the whole stock market appears to be selling off it's always a good idea to see which companies or sectors fair the best during the darkest of times. Yesterday the Nasdaq and S&P500 were down another -2.16% and -1.30% respectively, with the Technology sectors taking the biggest hit. One company did shine out as an oasis of green amongst a sea of red. Tesla, Inc.
Tesla, Inc. not only designs, develops, manufactures, and sells fully electric vehicles, it also concentrates on energy generation, and storage systems. Some would say that Tesla is a technology company with an automotive business, and some would say that it is a battery manufacturer with a line-up of cars. What is clear is that many incumbent automotive companies have been forced to move towards Electronic Vehicles (EV) and more importantly use new materials and technologies to overcome difficulties they faced before when trying to design an EV. Tesla has at least broken new ground and disrupted the industry.
A significant portion of the company's revenue has come from selling subsidized carbon credits to other automotive manufacturers, but Tesla will earn a significant percentage of revenue from its Energy Generation and Storage segment. A lot of its products are designed to be used in homes, commercial properties, and utility sites and the company develops, manufactures, installs, sells, and leases stationary energy storage technologies and solar energy systems whilst also selling electricity generated by solar energy.
Tesla has weathered the chip crisis better than its rivals, with overall deliveries up 20% between July and September. It was able to rewrite code to work with different chip architecture and as with many companies that have been hampered by supply constraints, Tesla Inc. will investigate developing and manufacturing their own chips in the future. Sales were down in the third quarter for General Motors, Honda, and some of Tesla's larger rivals due to a prolonged chip shortage. US sales fell almost 33% for GM in the third quarter, the lowest in more than a decade.
For the quarter ended September 30, Tesla delivered 241,300 cars globally, an increase of 73% over the year-ago quarter. Analysts had predicted that Tesla would deliver 229,242 vehicles so beating expectations has supported the share price.
Institutional investors play a major role in the stock price of Tesla and one if not the most influential fund is the Vanguard Group Inc ownership. According to an SEC filing dated 2021-02-10, Vanguard Group Inc has disclosed ownership of 57,814,310 shares of Tesla Motors, Inc. These shares represent 6.1% of the company's shares. The following investors have holdings like those of Vanguard Group Inc. Goldman Sachs Group Inc., Geode Capital Management, LLC, State Street Corp., Northern Trust Corp., and Jennison Associates Llc.
Vanguard has significantly increased their holdings as the price had risen, or maybe their buying created the price appreciation. Either way, as some of the largest holders of stock, their acquisitions or liquidations of Tesla will be a key signify to others on which direction the stock price is likely to go. While they hold, the price looks fairly stable up to at these elevated prices.
Another popular owner of Tesla is Cathie Wood. Unlike the Vanguard Group Inc. Cathie Wood will trade in and out of the share and has proven to be very astute at buying as the share price is discounted and selling at or above value. The above chart shows that Ark is more likely to purchase as the share price dips and then sell out on a rising price. Something retail traders should be practising too.
The monthly chart of Tesla looks super bullish currently with the last 4 months printing green, with higher highs and higher lows.
On the daily chart, there has been no obvious sell-off along with most of the major indices, signalling those holders of Tesla are not highly leveraged and don’t need to liquidate their holdings. Or that they believe Tesla has more room to the upside. The conspiracy theorist within me feels the energy crisis is pushing a narrative that supports the western world accelerating into the EV and renewable energy markets, and with fuel prices skyrocketing people are having to question whether they want to rely on something that is relatively getting more expensive? As well as hugely unpopular in this current political climate.
For the intraday trader, keeping an eye on the divergence between an oscillator like the RSI and price can give indications of when a pullback is more likely. The opposite divergence would be a great signal for when to buy the dip if you hadn’t already started scaling in.