In our November 21st report, we had predicted the stock of electric car maker Tesla, Inc. (NASDAQ: TSLA) to decline on the basis of production issues it is facing. Furthermore, we had also mentioned our willingness to purchase a put option to gain from the decline. The stock was trading at about $314 when our report went online. A week later, the stock was trading at about $300 levels. It is needless to say that our option expired in the money. Now, the stock has bounced back to 313 levels. We anticipate the uptrend to continue due to reasons given below.
According to Adam Jonas, a well-known Mogan Stanley analyst covering Tesla, the sporadic partnership between the electric car maker and Space X may turn into a full fledge collaboration or even a merger in the future. Jonas has listed several facts supporting his argument. Firstly, Elon Musk, who leads both companies, has said that he will remain a CEO of Tesla until the volume production of Model 3 rises above the targeted level of 5,000 vehicles per week. That is expected to happen by month end or in January. Musk has also stated that he will continue to remain a major shareholder and take up other leadership positions, in the event of stepping down as the CEO. Currently, Musk also serves as the “Production Architect” and Chairman at the Board of Tesla.
Jonas believes that competition will increase in the electric car market, leading to more consolidations. However, the analyst does not expect another company to buyout Tesla. On the other hand, he is of the opinion that a partnership with SpaceX could result in a profitable company. With a partnership in place, Tesla can easily raise capital to fund its future plans. To support his point of view, Jonas points to Tesla’s merger with Solar City and their increasing technical cooperation in the field of artificial intelligence.
Jonas also stated that automated driving networks and space technology use advanced software and hardware systems. Thus, a cooperation between companies belonging to those two sectors will greatly benefit each other. Tesla has already benefited from SpaceX’s expertise in material science and unique welding techniques. Using SpaceX’s expertise, Tesla started using Inconel instead of steel for the main pack contactor. Inconel is a space-grade superalloy which can withstand extreme temperatures. SpaceX uses the superalloy to manufacture the SuperDraco engine.
Tesla also acknowledged that SpaceX shared their ultrasound technology to resolve issues with aluminium casting. That enabled Tesla to save eight hours of work per car. Likewise, SpaceX has benefited from Tesla’s manufacturing model. The report from Morgan Stanley is expected to turn the stock bullish in the short term.
The chart indicates a major technical support for the stock at 300. Additionally, the RSI indicator is making a positive divergence with the price. Thus, we expect the stock to rally in the days to come.
In order to gain from the impending rally, we are planning to invest in a call option valid for a period of one week. The option should remain active for at least seven trading days. Finally, the stock should be trading at about $310 in the NASDAQ.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.