Could Tesla's battery run out of charge at earnings report?

Investor optimism is overshadowed by market scepticism as the electric car company is downgraded ahead of its earnings release

Source: Bloomberg

The excitement – verging on hysteria – surrounding Tesla’s groundbreaking announcement in May that it’s developing a new domestic battery pack system has seen the share price rise 41% in less than four months. However, with three investment banks cutting ratings for the firm, that enthusiasm seems to be waning somewhat. UBS has downgraded Tesla to ‘sell’, Deutsche Bank to ‘neutral’ and Pacific Crest reduced its rating to ‘sector weight’.

April saw Tesla attempt to reposition itself away from simply focusing on the automotive sector and towards a series of batteries which would be sold to both businesses and households alike. Growing this ‘Tesla Energy’ business on the back of the existing technological work building batteries for its electric cars seemed a natural fit and meant that costs could be minimal.

However, speculation is rife that all is not so rosy in Elon Musk’s garden, with the possibility of a disappointing earnings report on 5 August. There are accusations that the company has got somewhat ahead of itself, with both the automotive and energy business sales targets seeming highly unlikely. With that in mind, Tesla investors will go into this earnings release with a degree of hesitation.

Tesla is currently valued at half the value of Ford and this really highlights the possibility that investors have got a little carried away and fuels fears that the firm is somewhat overvalued. We could see revenues continue to rise, yet with costs increasing many expect to see the losses widen.

From a technical standpoint, the share price is fast approaching an absolutely crucial resistance point at $291.41. A daily close above this could be critical for the future growth of the stock. However, we can see three major red candles this month, when the firm was downgraded, pointing to a hesitancy in the shareholder base which could come back to the fore should earnings disappoint. There are clear jitters considering the size of those selloffs.

The clear rounded bottom we have seen over the past ten months portrays a relatively steady firm which is moving in the right direction. Yet, we have to see that $291.41 level taken out for the bulls to remain in charge. Otherwise the increasingly sceptical market sentiment could see us start to turn around and a move below $255 in particular could provide the signal for a selloff with the next support level coming at $245.4

Tesla is available for extended hours trading on the IG platform.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.