Tesla beats Q2 2017 view, Model3 delivery concerns haunt

Historically, retail traders and hedge funds which have placed bets against the electric car manufacturer Tesla Inc (NASDAQ: TSLA) has never done well and it was no way different this time. Following the release of fiscal 2017 second-quarter results that beat analysts’ estimates, the stock soared to a high of about $370 in the first week of August.

Hedge funds, which had made bearish bets on the stock, lost more than half a billion dollars. Since 2016, the funds have lost more than $3.64 billion by trading against the stock of Tesla. While there are traders who are still bullish about Tesla, we anticipate the stock to correct itself due to reasons given below.

The Palo Alto, California-based company reported fiscal 2017 second-quarter revenues of $2.79 billion, up 120% from $1.27 billion in the similar quarter of 2016. For the quarter ended June 2017, net loss widened to $336.40 million, or $2.04 per share, from $293.19 million, or $2.09 per share, in the same period of 2016.

Tesla

Excluding stock-based compensation expense, Q2 2017 non-GAAP net loss narrowed to $220.36 million, or $1.33 per share, from $225.88 million, or $1.61 per share in Q2 2016. The FactSet analysts had forecast non-GAAP net loss of $1.88 per share on revenues of $2.517 billion.

Segment wise, automotive division generated revenue of $2.29 billion, while $287 million came from energy generation and storage. Service and other business reported revenues of $216 million during the June quarter.

After spending $1.2 billion from cash reserves, Tesla was left with $3 billion in the bank, at the end of the quarter. To ramp up production of Model 3, Tesla may have to raise additional capital by next year. In this regard, CEO Elon Musk clarified that he can fund the capital needs of the company through a debt issue.

During the second-quarter, Tesla produced 25,708 vehicles and delivered 22,000 vehicles, up 53% on y-o-y basis. The company stated that it is on track to increase Model 3 production to 5,000 per week by the end of 2017, and 10,000 vehicles per week in 2018. The gross margin was 25%, versus FactSet estimates of 23.9% for the quarter.

Analysts anticipate Tesla to deliver 27,000 vehicles in the third quarter. However, it is not going to be an easy task for the company to transition itself from being a niche player to a main stream auto manufacturer. Historically, Tesla has never been profitable for a full year and that is not going to change any time soon. The market pays a premium for the stock only on the basis of revenue growth. Thus, we anticipate the stock to undergo a correction in the short-term.

The stock has started declining, after failing to cross above the resistance level of 367. Both momentum and accumulation/distribution indicator is moving downwards. That indicates bearishness in the stock. On the downside, support exists at 328. A price gap is also seen between 328 and 342. Thus, we can expect the stock to go down

We are planning to gain from the probable downtrend in the stock price of Tesla by investing in a put option offered by any of the honest brokers listed here. We prefer to block our surplus funds for the contract when the stock price trades near $342. Additionally, we would choose an option expiring on September 2nd .

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