MARKET HIGH FLIER TESLA: IS IT TIME TO SELL?

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Tesla recently revealed its highly anticipated Model 3 vehicle – an affordable car designed to compete in the luxury space, while attracting a new segment of motorists to the electric vehicle. In the first 24 hours after its unveiling, the Model 3 had already collected in excess of 180,000 pre-orders – an incredible result for a non-mainstream vehicle. That figure is now believed to be over 350,000.

Almost two months ago, I wrote an article about the release of the Tesla Model 3, and how the company’s shares were likely to rise in line with the vehicle’s significant demand. Since then, the stock has rebounded over 70% – even surging into the $260 range last week. Should you own stock in the company, this significant increase could represent a fitting opportunity to take some profits from your trade. Alternatively, should you have a more aggressive trading strategy, it could be an opportune time to short Tesla.

Tesla’s share price has surged since details emerged about the Model 3 release. Chart courtesy of FreeStockCharts.com

Tesla’s share price has surged since details emerged about the Model 3 release. Chart courtesy of FreeStockCharts.com

In light of the vehicle’s monumental demand comes other challenges for Tesla – namely, meeting said demand. With the Model 3 not due for a release to the public until 18 months from now, production is going to be a difficult exercise amidst constraints that have yet to see the company make a profit – all the while, Tesla will bleed cash as it invests over $1.5bn capex into other parts of its business this year. Analysts are even predicting full production won’t be until 2019, with a capital raising possible and competitors waiting in the wings with their own electric vehicles.

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Tesla has also done itself little favor by setting a lofty target to sell 500,000 cars annually before 2020 – a target that might be setting the company up to disappoint the market. When considering the fact that the market has attributed Tesla with a market value that is not far from General Motors, yet the former sells less than 5% of vehicles than the latter, it’s not hard to see there is an excessive amount of hype within this stock – leaving little room for failure.

With so many obstacles still in the company’s path, and a history of design problems delaying the release of its last vehicle, this may well be an example of the textbook saying – buy on rumor, sell on news!

Disclosure: Ser Man Traders do not hold any shares in Tesla (TSLA)