It has been a stunning few months for Tesla (NASDAQ:TSLA) as Elon Musk’s EV manufacturer has proven the nay-sayers wrong with a parabolic rally. Unfortunately for nervy bulls eyeing their profits, Wall Street’s most heavily shorted stock finally has some bad news to digest.
Tesla stock has skyrocketed on some incredibly bold moves from Elon Musk, the most impressive of which was his wooing of China with an incredible factory in Shanghai. Most of this positive news helped fuel a historic short squeeze, prompting a massive bear attack on TSLA Monday.
While most of the media was obsessing over Morgan Stanley’s momentum downgrade to underweight (which is a pretty common occurrence at the bank), they missed a release from Reuters that painted a much darker picture for TSLA, According to the report, demand for Tesla appears to have collapsed in its most prosperous market:
Tesla Inc’s (TSLA.O) overall vehicle registrations nearly halved in the U.S. state of California during the fourth quarter, according to a Dominion Cross-Sell report, which collates data from state motor vehicle records….. California, a bellwether market for the electric-car maker, plummeted 46.5% to 13,584 in the quarter ended December 2019, from 25,402 in the same period a year earlier. Model 3 registrations, which accounted for about three-fourth of the total, halved to 10,694.
The reason for this huge drop? Allegedly, the diminishing impact of an EV tax credit, which expired at the end of 2019.
Bearing some correlation to Apple’s (NASDAQ:APPL) buyback spree fueled by Trump’s tax-cuts, the difference here is that Elon Musk is not able to dictate the handouts to impact TSLA, unlike Tim Cook who can use his fat cash pile at Apple however he wants.
Despite all of this, the biggest reason to ignore the registration data is that cross-sell figures have a lag, which means they misrepresent deliveries versus registrations. California takes weeks to report a registration, which would mean the huge delivery in December would probably not have registered. This is also not the first time this effect has happened.
Investors looking at bright green screens must ask themselves a tough question. Does Tesla stock’s monster rally look sustainable given a gradually worsening macro environment? What they should not do is get too worried about the cataclysmic drop in registrations, whatever CNBC, Reuters or Fox Business might have said.
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Last modified: January 22, 2020 11:38 PM UTC