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Robust month for Tesla shares

Posted by : Siddharth Jalan on | Nov 26,2020

As November kicks off, Tesla share trading is poised to generate positive gains for the car company. Seasonally, the electric vehicle manufacturer outperforms in November, and the shares are off to a positive start. This comes despite news that the company was about a month away from bankruptcy according to CEO Elon Musk. Tesla is also poised to add new features to its vehicles as it appears the carmaker is poised to add 5G technology to its software packages as part of a new upgrade.

On the Precipice of Bankruptcy
On election day 2020, Tesla CEO Elon Musk announced in a tweet that the car manufacturer was about a month away from bankruptcy after it announced that there was a plan to produce mass numbers of Model 3 electric sedans. It appears that attempting to mass-produce these vehicles put the company in what Musk described as a “production and logistics hell”. Producing high volumes of the new electric vehicle was more than Musk had bargained for. Before Tuesday Musk and the company had never disclosed how close they were to bankruptcy.

At the onset of 2019, Musk and Tesla were in the initial stages of producing the Model 3 car which is the introductory version of the vehicles. Musk had raised billions to attempt to mass-produce this model. At the time Musk and company executives believed that they would be able to fund the company’s business needs through existing cash flow. While the company reported strong financial results in Q3, a lot of the gains were from regulatory credits.

New 5G Modem
It appears that there are some indicators that Tesla’s latest software update will contain a 5G modem and hotspot capability in its vehicles. Connectivity has always been one of the key features of Tesla’s offering in the auto industry. It not only enables useful features for customers, but Tesla has also been using the connectivity to collect data, mainly Autopilot. Now we are getting indications that Tesla might be updating the connectivity capacity inside its vehicles in the latest 2020.44 software update.

Seasonality Points to Strong Returns in November
Tesla’s shares have experienced an upward trend in 2020, and in September split 5-1. The split allowed the stock price to become more affordable for those who are looking to buy shares. The returns that Tesla has experienced in November has historically been very strong. Over the past 10-years, Tesla shares have rallied 70% of the time, and have notched up an average gain of 8.3%. This is the second-best month of the year next to June which historically has rallied 80% of the time for an average gain of 11.7%.

Technical Analysis
Tesla shares have been rangebound since shooting to new all-time highs in September of 2020. Prices appear to be attempting to form a bottom near the lower end of the recent range. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal in oversold territory. The current reading on the fast stochastic is 31, up from 15, which reflects accelerating positive momentum. Medium-term momentum is turning positive. The MACD (moving average convergence divergence) is poised to generate a crossover buy signal.

The Bottom Line
Tesla was on the brink of bankruptcy but has righted the ship and is firing on all cylinders. New vehicles are expected to install new software which should allow the company to produce a more efficient car. November has historically been a robust month for Tesla shares, as the stock price has outperformed during this month.