After the parabolic melt-up in Tesla’s share price on Tuesday to 968, shares have since plummeted 12% to 848 on Wednesday morning following a report that Tesla Giga Shanghai will delay Model 3 deliveries.
However, we must note, investors have been well aware of possible production woes in Shanghai for the last week.
As momentum accelerated in Tesla shares, it seems options traders refused to be left behind and call volumes have exploded higher relative to put volumes.
But the last few days have seen put volumes begin to accelerate as hedgers step in.
A senior Tesla executive said a temporary delay will be seen at the production facility in Shanghai and will affect made-in-China Model 3 car deliveries.
The executive blamed coronavirus for the delay and said restart production wouldn’t begin until Feb. 10.
However, it could take several weeks for the factory to ramp up Model 3 production to full capacity. This would undoubtedly hurt the March-quarter profit and delay deliveries of the vehicles. There are also concerns that supply chain disruptions could be seen for cars built at its California plant.
With supply chain disruptions imminent for Tesla in China, Canaccord Genuity lowered the company’s rating to a Hold after it was set at Buy.
“While we continue to favor TSLA as the leading EV juggernaut and believe the April battery day will be a critical positive milestone for investors to understand how formidable the lead is that TSLA holds, we believe patient investors will likely get a more attractive entry point,” reasons Canaccord analyst Jed Dorsheimer.
“Just as we observed a clear buy signal coming into 2020, we see the risk of China’s coronavirus as a clear headwind to the Shanghai facility, suggesting a more pragmatic position,” he adds.
Dorsheimer notes the expectations for Model 3 production of 3K units per week out of Shanghai is at risk in Q1.
“Folks are asking a lot of questions,” exclaimed Morgan Stanley’s Adam Jonas adding that “many investors are struggling to identify a strong fundamental underpinning for the move.”
“The Big Short’s” Steve Eisman has cut his short on TSLA, telling Bloomberg TV’s Tom Keene, “look, everybody has a pain threshold.”
“When a stock becomes unmoored from valuation because it has certain dynamic growth aspects to it, and has cult-like aspects to it, you have to just walk away.”
As we’ve noted in the last days to several weeks, global automakers, already suffering from an auto bust, have had to close production lines in China due to government orders. These include Tesla, Hyundai, PSA, Ford, Peugeot Citroen, Nissan, and Honda Motor.
Guess who’s puking Tesla stock this morning? Millennials who have been day-trading the stock to pay for student loans…
— LVD (@LVDTrades) February 4, 2020
This won’t end well. Tesla is just like Bitcoin, right before it imploded.