My story with Tesla (NASDAQ:TSLA) was rather interesting. I started out negatively due to the cost of the batteries, and after quite a bit of debate, I turned positive. Then I recommended a specific long trade taking advantage of Tesla's upcoming catalysts and huge short interest.
These characteristics combined into a situation where short-term favorable movement was very likely, and the cost to bet on that movement was particularly attractive, with the calls carrying nearly no time value. The trade was a massive winner, the May calls mentioned in my article went from $3.70 to $21.90 today, for a massive 490% gain, as Tesla itself went from $37.90 to $57.10. Obviously, Bernanke's wind greatly helped inflate Tesla's sails, together with the catalysts I identified at the time.
Now, however, it's time to reconsider
Short squeezes don't last forever, and while the catalysts I identified played a great part in taking Tesla higher, it's obvious that the magnitude of the movement was made possible just because of the grief-struck Bernanke-victim shorts. The move took Tesla all the way up to a $6.5 billion market capitalization - and while Tesla has turned profitable, one can't say the road ahead is free from obstacles.
Tesla turning profitable was one of the catalysts, perhaps the most important at this time. One of the others was that Tesla is making up to 500 vehicles per week, thus well on track to make its objective of 20,000 vehicles during 2013, or maybe even surpass it.
Tesla also announced a new financing scheme to sell its expensive autos, a scheme it revised and extended this very week. Credit is always helpful in moving metal, so this scheme removes some of the hardship in continuing to sell the model S quickly in the short term.
However, a problem beckons. The Nummi factory which Tesla bought from Toyota was designed to produce around 20,000 vehicles/year. Tesla should now be hitting into this constraint. At the same time, we're approaching the 1st full year of Model S sales, and Tesla will now be transitioning from selling the novelty, to selling into a more established market. I still have doubts whether these cars will be mainstream at this point, thus it might be hard to sell at a quicker pace both from the production standpoint and from the market standpoint.
In short, we have Tesla priced after a short squeeze at a full $6.5 billion market capitalization, already discounting a lot of success down the road, at the same time that there's a good chance growth will plateau for a year or more at around 20,000-25,000 vehicles. This thus seems like a good place to take profits.
Having had an extremely fortunate set of articles on Tesla, timing the present move and direction perfectly, I now believe chances are that the stock will stagnate or reverse part of the gains. The valuation is demanding at this point, most of the catalysts have already produced their effects, and growth has a strong chance of plateauing for at least one year, due both to production constraints and ultimately demand for the Model S.