Update If you re here to mock my bad Tesla earnings call please note I have eaten my crow for breakfast here. Feel free to continue mocking me wherever you see fit however that Tesla story this one on highway billboards or on Twitter JeffReevesIP.
Tesla Motors (TSLA) stock has soared about 300% year to date thanks to a host of great headlines. But shares have started to soften up big time in anticipation of Tesla earnings today and that could mean a painful turn for TSLA stock.
Tesla earnings are going to have to show a strong backlog robust production and some firming up in admittedly thin profit margins. After Tesla boasted a surprise profit last quarter the bar is mighty high for TSLA this time around.
Which sets the stage for disappointment.
Sure the Tesla Model S is a thing of beauty and won the highest ever rating from Consumer Reports. And yes Tesla s expanding Supercharger Network and profitability shows that this company is not a fad.
But 300% gains in TSLA stock Thanks largely to the bears being proven wrong and a mammoth run of short squeezes That s hardly sustainable and investors need to be prepared for continued volatility after Tesla earnings.
Remember the company generated 12% of Q1 from selling its zero emission credits to other automakers. In 2012 California set tougher zero emission vehicle standards that upped the requirement for Honda (HMC) Toyota (TM) General Motors (GM) Ford (F) and Nissan (NSANY) to produce a certain number of ZEVs. But there s a provision that allows these automakers to simply pay Tesla in exchange for a credit that allows automakers to count some Model S sales toward their ZEV quota and given the success of Tesla you can bet that models like the Nissan Leaf have been a big focus of automakers recently.
That might not erode the credits anytime soon but between supply issues at Tesla and competition from entrenched automakers there will inevitably be a slowdown in momentum soon.
As of mid May 37% of Tesla s float was still held short. That dropped to under 30% in mid July but it s still pretty darn clear that the bears are lurking in anticipation of disappointing Tesla earnings.
And the recent big move down hints that the bears might be right on Tesla earnings this time around.
I think Tesla is a compelling story and will be here for a while. But investors might want to consider taking some profits off the table in advance of Tesla earnings because the volatility is going to get severe.
If just a 6% decline can happen on no news in anticipation of next week s Tesla earnings what do you think will happen after the actual reportRelated Reading I am long term bullish on Tesla despite my short term fears. (The Slant) Elon Musk says he got into the electric car biz because nobody else would. (TechCrunch) Chuck Jones says to tap the brakes before TSLA earnings. (Forbes)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor s Guide to Finding Great Stocks. Write him at editor investorplace.com or follow him on Twitter via JeffReevesIP. As of this writing he did not own a position in any of the stocks named here.