Why I'm Buying Tesla Even as 'the Cult' Seems to Abandon Elon Musk
Tesla is a falling knife as the shares take a beating but I'm planning to buy as a speculative opportunity opens up.
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We've got a falling knife.
I speak of former Wall Street darling, electric vehicle manufacturer, Tesla TSLA. The stock has fallen out of bed. No, it's not likely because CEO Elon Musk has been focused elsewhere. While Musk is serving his country doing the work in finding abuse and incompetence in federal spending at a level that I don't think any of us could have comprehended prior, and work that should have been tackled years ago, his focus has to be spread rather thin.
Other than heading the new Department of Government Efficiency for the Trump administration and probably finding much more in the way of wasteful and perhaps unethical fiscal behavior at a number of federal agencies, Musk runs Tesla, SpaceX, AI startup xAI, and owns social media platform "X" (formerly Twitter). I have trouble writing several articles a day while also managing money.
What he's doing is beyond incredible and beyond the abilities of almost anyone I know. I was a U.S. Marine and worked on Wall Street for several decades. Capable people are really all I have known. This guy's on his own level. Still, everyone is human. Perhaps, SpaceX or the startup are also taking on a higher priority than the car company or the social media platform. That's not something I've heard anywhere, it's just something I've wondered.
Tesla Earnings Were Sloppy
Tesla reported the results of the firm's fourth quarter on January 29. The firm posted an adjusted EPS of $0.73, a GAP EPS of $0.66 and revenue of $25.71 billion. The top-line print fell a country mile short of Wall Street's expectations, while only showing year-over-year growth of 2.1%. The adjusted earnings print also missed the mark. Tesla suffered negative sales growth back in the second quarter and has not even sniffed 10% sales growth since Q2 2023. So, is Tesla a growth stock? The short answer is "no." The long answer is "not anymore."
The firm's results for the current quarter will be published after the closing bell on April 17, so we're a long way from there. Wall Street sees an adjusted EPS of $0.52 on revenue of roughly $23.9 billion for this period. That should improve upon investor sentiment, if realized, as that would compare to the year-ago comparison of $0.45, while reflecting 12% sales growth. That does not put Tesla back on a "good old days" trajectory. The other issue is that "the cult" is no longer behind Tesla. As Musk has become a political figure, it would appear that his chosen political side and the chosen political side of those people most likely to purchase or lease an electric vehicle might not be the same side.
Just an FYI on Tesla
Operating and free cash flows are still quite beastly for Tesla, and the balance sheet is a work of art. There is good reason to invest in Tesla as long as one understands that they are not investing in growth, and that the CEO's brain may at times move on to other priorities.
Readers will see a head-and-shoulders pattern with a $374 neckline. This is/was a bearish indicator and would have out the downside target price at a rough $318. The stock traded as low as $325 on Tuesday. We're not done. Let's move on...
Now, pretend that you don't see that head-and-shoulders pattern. Now, you see a falling-wedge pattern, which is a pattern of bullish reversal. Tesla needs to find support near the lower end of the range of this wedge. The upside pivot is the 50-day SMA all the way up at $402. That might as well be the target, but the shares are worth initiating at this level with a smallish, long position. The 200-day SMA is a rough 16% below the last sale, so that's not an appropriate panic point. The $300 level might be though.
Remember...
We are playing with a falling knife here, so even though this is Tesla, this is still speculative. Appropriate sizing and respect for panic points are paramount, but fear should not be part of the equation. I expect to take on a small, long position in this name today.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
