This Is What Should Drive You Toward Tesla (And It's Not the Cars)

Shares of Tesla TSLA traded higher ahead of the opening bell on Monday morning. The electric carmaker had disclosed that it had approved an interim stock award of 96 million shares valued at roughly $29 billion to CEO Elon Musk. The company, in a regulatory filing this morning, made public news that Musk must first pay $23.34 per restricted share that vests, which would be equal to the exercise price on a per share basis of the firm's 2018 pay package that had previously been awarded to the CEO.

The terms of this award indicate that Musk cannot sell, or transfer shares covered by this 2025 interim award until after the five-year anniversary of this grant with an exception for a need to pay related taxes. The award is not final and will have to be voted on by shareholders at the firm's annual meeting on Nov. 6.

This award comes little more than half a year after a prior compensation package worth roughly $56 billion has been struck down by a judge. That decision is currently being appealed to the state of Delaware's Supreme Court. Does this really help the share price? I think investors do really feel better about the company and the stock when Musk is focused on leading the firm forward and this does help in that regard. Is this alone a good reason to invest? Probably not.

The More Important News

Recently, more important news items have landed. These events better support Tesla's ability to progress from here, not just as an electric car company, which is turning out to be a less-than-spectacular business, but for its other businesses. The real potential for this company lies in the robotaxi, driven by AI, which could ultimately disrupt ride sharing, but mass transit and the trucking industry. That's in addition to robotics and energy storage.

The first of those items would be the $16.5 billion supply deal for semiconductor chips with South Korean tech giant Samsung SSNLF. Samsung has a new giant chip fab facility in Texas and this facility will be dedicated to manufacturing A16 chips for Tesla. The contract will run through year's end 2033, so Tesla is set on that front for a while. The second event, coming just a couple of days later, was a $4.3 billion agreement with LG Energy, which is a South Korean battery manufacturing company. LG Energy will produce lithium iron phosphate batteries for Tesla in a deal that runs through July 2030.

These news events all came after Tesla released the its second-quarter earnings on July 23. Those earnings were not well received by investors as Tesla's bottom line reflected an 11.8% year-over-year contraction in revenue generation and the adjusted bottom line number just met expectations. Free cash flow for the second quarter also dropped precipitously from the quarter prior.

Wall Street

Many analysts have opined on Tesla since these news events hit the tape. But most of those analysts are not very highly rated by TipRanks. There is, however, a difference of opinion worthy of note. Glenn Thum of Phillip Securities, who is rated at five stars out of five, reiterated on July 28 his "sell" rating on TSLA as well as his target price of $220. Lower average per vehicle sale prices and a loss of market share in China were just too much for Thum.

But this morning, Adam Jonas, a four-star rated (or five) analyst at Morgan Stanley reiterated his "buy" rating as well as his $140 target price. Jonas is looking past the car company and seeing the firm's strong positioning in physical AI. That's what we have been talking about... autonomous vehicles, robotics and energy storage.

The Chart​

Readers will see that ​TSLA rallied nicely out of a Double Bottom pattern of bullish reversal back in April. The shares then went into a now at least two and a half month Closing Pennant pattern. This is a series of lower highs coupled with higher lows. Closing pennants do not signal direction. They do signal a coming period of volatility that will likely begin with an explosive move in one direction or the other.

Relative strength is neutral. The daily Moving Average Convergence Divergence is almost as neutral as it gets as well. Maybe the MACD is postured slightly bearish, but not decisively so. What matters for the stock is the ability to retake its 21-day exponential moving average to get the swing crowd back on board and then to retake the 50-day and 200-day simple moving average, which are currently in the same neighborhood. That would reinvigorate institutional investment.

The upside pivot is currently the 200-day line at $322. Hold that line and a target price between $370 and $385 would be very realistic. But a failure to take and hold those levels would then see the violent move would be lower. Friday's low did dip below the lower trendline of the pennant. That makes the downside pivot $297. Trigger that pivot and we could be talking about a retest of the March and April lows.

Trade Idea (minimal lots)

The idea is a simple buy-write. Tesla will report again on or close to Oct. 15.

- Purchase 100 shares of TSLA at or close to the last sale of $308.65.

- Sell (write) one TSLA $320 call option for about $23.20.

Net Basis: $285.45

Note: Should the shares be called away at $320 in October, the trader will have realized a profit of 12.1% in ten weeks. Maybe this is too pedestrian for some folks, but the sale of the call greatly reduces the risk. The stock can come in 7.5% from here before any net principal would be at risk.

At the time of publication, Guilfoyle had no position in any security mentioned.