Thursday, August 8, 2013

Tesla (TSLA) - Now a $20B Firm Off of Earnings Blow Out; How Wall St. Absolutely Blew It; But I didn't... And I'm Just a Guy...

TSLA is trading $156.83, up 16.8% with IV30™ down 32.8%. The LIVEVOL® Pro Summary is below.

Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components.

So there's a lot to say about TSLA. The most pressing is the stock and vol move today off of a blowout earnings report. Interestingly, while all of Wall St. seems to have missed the sales projections, somehow I didn't, and all I did was walk in to a dealership for 10 minutes and speak to a salesman. More on that in a sec... You'll want to read it, trust me...

But first, I did a three-piece story on TSLA recently and have included the links to those three articles below (click on the bolded title to read). You can also see the stock price and volatility levels at the time of those articles.

5-9-2013: Tesla (TSLA) - Earnings Explosion Spectacle Hides Vol Shift -- This is a New Company -- A Paradigm Shift is Complete

5-15-2013: Tesla (TSLA) - May Skew Stays Parabolic; Vol Diff Opens... And Some Stuff You May Not Have Known...

5-29-2013: Tesla (TSLA) - This is a New Company; The Paradigm Shift Continues; Part 3 of 3.

And today the stock is trading ~$155.

So there's no denying it now, TSLA is a big deal.. The market cap is approaching $20 billion. Here's the news from earnings:

NEW YORK (TheStreet) -- The thesis on Tesla Motors (TSLA_) changed again last night. Now, the question for investors isn't whether the electric-car manufacturer can be profitable, it's just how profitable it can be.

Tesla, led by CEO Elon Musk, earned 5 cents a share during its second quarter, generating $405 million in sales. The Model S continues to blow past the wildest expectations of industry observers as global deliveries surged in the three-month period to 5,150 units for the quarter.

In contrast, analysts were expecting a loss of 17 cents a share on $383.4 million in revenue for the second quarter.

Source: via Yahoo! Finance; Tesla's Future Is Now, written by Chris Ciaccia.

Interestingly, the note mentions that the 5,150 units sold blew "past the wildest expectations of industry observers." On May 9th, with the stock trading at $70 I said this: "This is a new company, starting today."

But it was the May 15th article that was the most compelling. I wrote:
"After I wrote the post on May 9th, I actually walked into a TSLA dealership and spoke to a salesman. He was a shareholder (or so he said). I have no idea if what he said was true, or if it is already common knowledge, but according to him the firm sold 2,600 cars last year, and this year they are going to break 20,000. The cheapest model is $70,000 and the most expensive is $113,00. They are at full capacity -- which according to him was 500 cars per week -- and every car made is to order so production = sales."

Note that I said "they are going to break 20,000" units sold for the year. Well, if there are four quarters in a year, that would make 5,000 units per quarter at zero growth. I'm sorry to say, the 5,105 unit number is not a surprise to me and should not have been to anyone else. And, any analyst that would have walked into a dealership would have gotten the identical information I did.

Wall St. absolutely blew this one -- very poorly done. I'm just a guy chatting it up with a salesman. Come on guys, you gotta do better.

OK, off the soapbox, onto volatility. Let's start with the one-year Charts Tab. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

So, yeah, the stock is up HUGE.  A year ago this was a $29 stock and today it's flirting with $160.  And, as I mentioned earlier, we're not talking about a $100MM market cap now worth $700MM, this is now a $20 billion market cap company.

The volatility collapsed after earnings which is normal, and is now trading in the 46th percentile on an annual measure -- feels like right where it should be.  But there is something going on in the volatility, that continues to reflect substantial tail risk.  Let's turn to the Skew Tab, below.

I've just included Aug and Sep.  Even after earnings, Aug vol is still elevated to Sep (and yes I know Aug is expiring in a week and a half). What I do note is the relatively exponential skew of Aug compared to Sep. Or, in English, check out how the upside and downside skew is priced in Aug relative to Sep (green circles highlight it). There is a rather substantial vol difference from the front to the back monthly expiry in the OTM options reflecting much greater tail risk even in the next 10 calendar days.

Given the move off of earnings and just the move over the last year, that makes sense, but it also represents a trading opportunity.  For you risk lovers, a short gamma long vega trade in the OTM skew is up -- but that's a hell of a risk.

I'll conclude with a copy & paste from the article I posted on may 9th ($70 stock):

This is called a paradigm shift (well, that's what I call it) -- this company is now seen as a riskier entity. That's not bad news, in fact, for TSLA it's based on extraordinarily good news (earnings results). But TSLA is now a different company... and in this case, good for them... next level please...

This is trade analysis, not a recommendation.

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  1. Ophir - This is the best call I have seen by any analyst. I don't trade TSLA, but I religiously follow your blog. My hat is off to you.

  2. so were does tsla go from here? thanks