Tesla is Running Out of Gas

July 30, 2019
“If you don't find a way to make money while you sleep, you will work until you die”
― Warren Buffet

5-Day Change

  • Bitcoin: $9,492.46
  • Ethereum: $207.77
  • S&P 500: $3021.00
  • Dow Jones: $27,221.40

Top Trading Ideas:  

Bitcoin Market Analysis: Trade Strategy + Signals!

SHORT: Bitcoin Headed Downwards!

GOING DOWN: Bitcoin is struggling in the short term


Is The Bitcoin Rally Over?

Bitcoin’s moving down, down down...at least in the short-term. The top crypto by market cap hasn’t quite lived up to the expectations of a sharp rise to a new peak, like 2017, and instead has lost 11.1% over the past month as the price consolidated and then fell. This week’s signals are all pointing to an acceleration of the downward trend, meaning that the price is looking to fall past $9,000 - in fact, $8,350 seems to be the next target.

What happened to HODL??? After falling past the critical $9,650 support last week, and opening lower this Monday, it seems pretty clear that we’re in a downward slump, at least for a short-term outlook. As for why? Well, a big factor may be the ongoing New York case against a certain crypto exchange and Tether - especially in China, where trading fiat for crypto is illegal, but not crypto for crypto.

Should we be panicking? Woah, hold your horses. The downwards trend is only from a short-term perspective. If we scale back to the start of the year, Bitcoin is still up 147.38%, and most of the alts have also gained (except Ripple, which has lost 15.19% on the year-to-date.) The facts remain that we still have some nearly guaranteed price spikes in the future - the Bitcoin halving for one, new research showing trade volumes independent of price in developing countries, even dovish central bank policies which are boosting crypto. 

What about the alts? They’ve fared rather worse than Bitcoin, though mostly on a short- and medium-term scale (excluding Ripple.) Ethereum has been a prime example of altcoin hype ending up in tears - it’s down 28.11% over the month, and there’s not a lot to suggest that’s going to change any time soon. Nearly every top alt, including Litecoin, Bitcoin Cash, and EOS have all lost 20-30% this month - though at least for Bitcoin Cash, a new feature has finally appeared to differentiate it from Bitcoin, and that may give it a leg up in the coming weeks.

Wut We Think: Crypto isn’t dead and the sky isn’t falling, even if the prices are trending downwards. Non-speculative uses of Bitcoin are still growing (meaning non-trading uses), and the network itself is stronger than ever. June 20th even saw the highest hash rate peak in history, with the current rate not far off. And while daily confirmed transactions are hovering around 333,000, the trend has generally been growing, along with unique addresses used, which have been moving steadily back towards 2017 peaks. All in all, it’s a bit early to panic, but it may be time to short instead of HODL.

Facebook Continues to Beat Expectations in Q2

Those memes showing Mark Zuckerberg as the Terminator are about to get a lot more relevant...especially as Facebook’s Q2 earnings handily beat analyst expectations, despite a record $5 billion fine and two separate antitrust probes into the company. It is starting to look like nothing can kill the social media juggernaut. Even daily active user growth, which is soon to hit some mathematical barriers (namely, the population of the human species), is growing rapidly in the Asia-Pacific and Rest of the World segments. In fact, Facebook’s growth even beat out its own guidance - growth accelerated instead of slowing down.

What did the Q2 earnings say? A lot, and nearly all of it positive. 8% daily and monthly active user growth, a 28% y-o-y revenue increase, and a whopping 49% year-over-year increase in net income. Facebook CEO Mark Zuckerberg stressed Facebook’s compliance with various privacy issues, including election security, and Facebook’s commitment to launching and supporting their Libra cryptocurrency. And the stock jumped 4.3% on the earnings beat. 

Is there anything bad at all? Well, the numbers look great. And the company’s guidance is cautious as it was last time. But if we look beyond the daily jump, then Facebook’s stock has actually lost 1.6% since Monday - consequences of another reveal in the earnings release of a second FTC investigation into the company. That makes two ongoing high-level investigations into the company (that are public) and considering the last one resulted in a $5 billion fine. The other two may have grave consequences for Facebook. Add to that the continuing uncertainty over Libra - CEO Zuckerberg mentioned that Libra may fail to launch at all - and Facebook may see some difficulties down the road.

But it’s hard to argue with success: And Facebook certainly has success in spades. Despite the criticism, fines, and investigations, the Facebook stock is up 56% since the start of the year, and despite flat or minor growth in North America and Europe, it is still gaining users at an astonishing pace for a now-mature technology company. And the FTC fine didn’t just end with money - Zuckerberg mentioned that as a result of the decision, privacy-related matters are being overhauled at Facebook to ensure greater accountability for top executives and better independent oversight of data security.

Wut We Think: Love it or hate it, Facebook is nearly omnipresent in our lives, either via the proliferation of Like and Share buttons or via the simple fact that almost everyone is on it. Of course, with great power comes great responsibility, and it remains to be seen whether Facebook’s leadership has the vision to see it through the regulatory headwinds - especially as it moves to launch a potential game-changer technology in Libra. But, discounting all of that, one core fundamental remains - Facebook has a few billion users. And those users spend a lot of time on Facebook. And advertisers want some of that time spent on their ads. As long as that basic relationship exists, Facebook is going to keep growing. 

Tesla Shares Sink 10% After an Earnings Release. Why?

It turns out that Tesla’s aren’t quite like iPhones...and people aren’t buying into a regular upgrade cycle. That’s bad news for the electric car company, which saw a 13.2% drop after its Q2 earnings released last Wednesday. And a lot of that has to do with sales. Not the numbers, which on paper look good: all-time high delivery numbers of 95,200 cars from the beginning of Q2 to July 2, and a 40% improvement in quarter-over-quarter revenue - but rather in the way they break down. That, plus uncertain guidance (Musk says they’re on track to hit 350,000-400,000 deliveries by the end of the year, but it’s hard to see how) resulted in the disappointing stock performance we saw.

So what does the breakdown mean? Well, 158,375 cars are great for the first half of the year, but the grand majority of those deliveries (77,000), were of the cheaper Model 3, which runs for around $40,000 retail, instead of the more expensive S and X versions. This means that Tesla actually had a net loss of $408 million in Q2, with gross margins falling from 20.6% a year ago to 18.9% now. And a lot of that has to do with the reduction of subsidies across the world, with accompanying price cuts - meaning that without tax incentives, Teslas are suddenly no more attractive than a Chevy Bolt. 

Any more bad news? Yes, actually - the earnings call also revealed another high profile departure from Tesla - this time the CTO, J.B. Straubel, who’s been on board since 2005. While the now ex-CTO will remain with the company as an advisor, Straubel also liquidated $30 million worth of Tesla shares, which has given some a signal that even old hands like Straubel are losing faith in the company. And Musk is still the erratic CEO - the last time he wiped 7% off the stock price with just a few tweets, and there’s no guarantee it won’t happen again.

Is there any good news at all? To be honest, not much, except hope and faith. There are some signs of light; however - Tesla still has $5 billion in cash, enough to run on fumes for the next two years. And it isn’t completely unrealistic to expect the company to hit its guidance for deliveries, even if that would mean 45% to 65% year-over-year growth. And Musk did say that he expects ‘positive GAAP net income in Q3 and the following quarters’.

Wut We Think: Tesla is definitely in rocky waters, and it’s becoming more and more of a question if Tesla can turn a profit delivering cheaper cars. While the results so far of Model 3 sales haven’t been promising, as it keeps being pointed out - more cars sold doesn’t necessarily result in profits if the margin on the vehicles sold isn’t high enough to offset the costs. And with subsidies and tax incentives being cut around the world, resulting in price cuts for Tesla’s ‘luxury offerings,' those margins fall even further. The cars themselves are still winning out on reviews, but as cheaper EV alternatives enter the market from competitors, Tesla is quickly losing its first-mover advantage. Ultimately, for Tesla, it comes down as it always had - do you trust in Musk and his stories? Or do you judge a book by its contents? There are some truly innovative technologies waiting in the wings at Tesla - but only time will tell if they pan out.


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