Tesla 2Q2021 Earnings Top US$1B, up 10x! What’s next from here?

The situation for Tesla looked extremely grim in 1H 2021 due to inflationary concerns as well as chip shortages. Apart from chip shortages, unknown to many, Tesla was also facing cell shortages. Everything that could go wrong for this company was indeed going wrong. Even their position in BTC was crashing (I estimate their entry price to be around $30-35k USD) as BTC hit lows of $30k and is currently hovering at its near-term physiological resistance of $35k.

With its stellar 2Q 2021 earnings report on 26 Jul 2021, I must say that this may be exactly what Tesla needs for its bull run to continue.

Let’s look at their recent earnings, catalyst for the company in the quarters ahead as well my take on what the charts say.

Telsa’s 2Q 2021 Earnings – Fundemantal Metrics

Tesla reported their second-quarter earnings after the bell on Monday (26 Jul 21) and it’s a beat on both the top and bottom lines. Shares rose about 2% after-hours and closed on a +6% on Friday (30 Jul 21).

Here are the results:

• Earnings: $1.45 vs 98 cents per share adjusted expected, according to Refinitiv
• Revenue: $11.96 billion vs $11.30 billion expected, according to Refinitiv (CNBC)

While these numbers look great, let’s take a look at how this compares with their quarterly performance in the diagram below.

It is clear from this chart that Tesla is out of the “negative net income” area and in my opinion, it is very unlikely that we will see Tesla ever report a loss moving forward.

Vehicle Delivery Numbers – a better metric

Now we can go on all day about GAAP and other fundamental metrics but let’s be honest, no one in the right mind would enter a position into Tesla based on its fundamentals. It simply does not make sense, given that Tesla is sitting on a PE ratio of 658.

Instead, one of the more popular ways which analysts use to get an idea of how well an EV company is growing is through vehicle delivery numbers. Vehicle delivery numbers are perhaps one of the best indicators for EV companies such as Tesla (though we can debate if Tesla is truly an EV company, let’s leave that discussion for another time) as it “indicates that vehicle productivity within the company is increasing and that there is sufficient demand for the company’s products.”

As seen in Statista’s chart below, I would conclude that Tesla’s delivery numbers still look fantastic and show no sign of slowing down even with current supply chain constraints.

What do the charts say?

While it’s easy for me to say that Tesla will do well in the long run, I can’t help but interpret short-term weakness in the price action of the chart, and one of the ways in which I have identified this is through the divergence of the RSI.

When we look at divergence, what’s happening here is that there is a disagreement between the price of the stock and the momentum indicator. When such events happen, it can signal weakness in the stock, a reversal in the trend, or sideways trading for a continuous period of time.

I’ve identified this based on how TSLA is making lower highs (in terms of price) whereas the RSI continues to show overbought signs at each lower high. This indicates to me that investors are now willing to accept a lower price whenever the stock is considered “overbought” by the indicator.

Does this mean that you should go all out and short Tesla?

I definitely wouldn’t recommend that unless you really know what you’re doing else you may end up in this category of investors.

That said, temporary weakness may mean little in the long run and some investors may also consider this as a buying opportunity (myself included).

If we look at other indicators such as the MACD, by and large, we are seeing selling pressure reduce overtime since the correction early this year.

Temporary weakness still remains as the MACD line has not broken over the signal line possibly indicating more sideways trading until the price breaks out of its current channel ($630 t0 $700). For traders/investors looking for more confirmation in the price action before taking a position, I suggest that this range of $630 t0 $700 be watched closely in the weeks ahead.

2 Key Challenges/Catalyst for Tesla moving forward

Tesla does have multiple hurdles ahead. How you interpret their potential challenges would ultimately influence your decision to short or long the stock.

Let’s look at 2 of the more prominent hurdles:

1 – Supply Chain Issues

Two of the most important components required by modern-day EV companies include semiconductors and energy cells. As more EV companies make the push towards autonomous driving, semiconductors will become extremely valuable as each car will be required to have a computer within it to process updates from the maker as well as any software changes.

For energy cells, every battery contains cells so it is really one of the most basic essentials for the EV industry. As the EV race heats up, these two components will become more scarce. What Tesla is trying to do is to become self-sufficient in the sense that it is trying hard to produce its own chips and cells.

“The global chip shortage situation remains quite serious. For the rest of this year, our growth rates will be determined by the slowest part in our supply chain, which is – there are a wide range of chips that are, at various times, the slowest parts of the supply chain”.

Elon Musk, 2Q 2021 Earnings Call

In my opinion, supply chain issues never rattled me as so long as there are no “product demand” issues, the company is still on track to grow.

Furthermore, even in the midst of this supply chain crisis, Tesla’s ability to report such earnings gives me the confidence that in “normal” times, their earnings would have been way higher.

2 – Bitcoin

I’m a little less enthusiastic about Tesla’s stake in bitcoin.

Their current stake is so large that so long as Tesla holds on to this amount of bitcoin, their share price is likely to correlate with that of bitcoin. As an investor holding on to stocks, the reason I do so is to have a well-diversified portfolio. As such, the one thing I dislike most about Tesla is how its stock price has so much exposure to the price fluctuations in bitcoin.

Having said that, we must understand why Tesla as well as so many other companies have decided to have their fates intertwined with that of cryptocurrencies. Think of it this way, if you’re selling a product in 20 different countries, it is probably better to have the transactions done in one universal currency thus eliminating the need for FX/Bank Fees when transferring sales from the countries back to your HQ.

All in all, I must say that as much as I’m not for Tesla’s involvement in BTC, if the vision of BTC as a legitimate currency actualizes, this may eventually be good for both Tesla and Bitcoin itself.

Concluding Thoughts

I’m long on Tesla but for new investors with no earlier entry into this stock, you may want to tread carefully as we are indeed in a very volatile environment of late with the clampdown on Chinese Stocks as well as the emergence of the new delta variant.

While inflation seems to be priced in, overall market conditions seem meagre at best and I do think that there may be prolonged sideways trading in the months to come.

I am vested in Tesla at the time of writing.