Is Tesla About to Collapse?

As I have pointed out here in the past, being negative on Tesla (TSLA) is usually not a good idea. The problems that the company faces are fairly obvious, but Elon Musk seems to have an almost magical ability to make them irrelevant. Nearly thirty percent of Tesla shares are currently held short, and when the news came this week that the company was once again looking like missing production targets those shorts must have been licking their lips, expecting a massive drop in the stock. As usual to this point they were disappointed, but the news behind the headlines suggests that they may soon get what they have been looking for.

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For now though, what we saw was what is shown on the above chart. TSLA dropped, for sure, but over a couple of days only lost what it gained the day before the news broke. Once again, it showed the kind of resilience that has led me to refer to it as "Teflon Tesla".

That resilience comes from the peculiar nature of Tesla. It is a company built on hope and vision, it is a haven for believers in alternative energy and tech, it is, in short, as much an ideology as a corporation. That leads to committed investors who see every bit of weakness, even when that weakness is for good reason, as a buying opportunity. That produces the kind of chart that you see above, where the stock becomes a range trader's dream, frequently bouncing off clear support and resistance levels. As a frequent range trader myself though, I know one thing to be true…that will not last forever.

A breakout has to come, and for a couple of reasons that looks like being to the downside because the bad news for Tesla keeps piling up. The Model 3 production level misses are not getting any better with time, and the constant "any day now" reassurances from Musk are gaining less and less attention. That is hardly surprising given that Model 3 production is currently running at around 737 cars a week versus the promise of 5,000 a week by the end of last year. Even more worrying, production has declined this month versus February as reports surface that said shortfall is due to the production of substandard parts.

Musk has, in the past, always successfully explained away the problems or at least deflected from them, but with a believable, concrete reason for them that will no longer be as easy. Vision is a wonderful thing, and sadly lacking in corporate America but at some point, execution of that vision has to come. So far, Tesla has fallen woefully short in that department.

The other thing that suggests that this time is different is the recent rash of departures by high-level management at the company. This week the Chief Accounting Officer Eric Branderiz left for personal reasons. That is not particularly remarkable in itself, but coming on top of the multiple other recent resignations, including the CFO leaving almost exactly a year ago and three others since, it starts to look as if those in the know don't place a particularly high value on their stock grants.

I am not a hater. I have written positively about TSLA on multiple occasions on the way up and I understand the quality and significance of their products. But, back in September when TSLA was trading at or near its highs, I suggested shorting the stock in an article in these pages. Since then the stock has lost ground but has continued to show its usual disregard for trivial things like profits and production. Sooner or later, though, those things matter, and the evidence suggests that that point is rapidly approaching for Tesla. Once reality intrudes, the rush to exit could easily become vicious quickly, so despite the risk and cost of shorting a stock or buying naked puts, either one of those trades looks worth it.