Stock of the week - Tesla (31.03.2022)

• SEC filing from Tesla points to a possible stock split

• Company secured nickel supply by reaching agreement with Vale

• Chinese lockdowns remain big operational risk

• Q1 delivery data likely to be released this week

• Shares jumped 40% over the past 2 weeks

Tesla experienced a stellar second half of the month with share price jumping 40% over the past 2 weeks. While the Russia-Ukraine war has disrupted supply chains significantly, stock of the US electric vehicle manufacturer continues to hold ground. On the other hand, a new Covid outbreak in China is threatening to disrupt company's production in the country. Let's take a look at recent news on Tesla!

Stock split

Tesla submitted a SEC filing on Monday, in which it signaled willingness to ask shareholders to approve a stock split. Filing suggested that a vote on potential stock split will be held at the upcoming Annual General Meeting. So far, it was not specified what split ratio will be. Tesla's previous stock split, conducted in August 2020, was a 5-for-1 split. Tesla is another US mega cap that has signaled willingness to perform a stock split at the beginning of 2022.

While stock splits themselves do not have an impact on investors' holdings, they can increase demand for company's shares. Why? Because single shares are cheaper and more investors can afford them. Current share price exceeds $1,000 and this could be a hurdle for retail investors who do not have access to fractional share trading. This somewhat bullish impact of stock splits is evidenced by BofA research. Results of this research (pictured below) show that companies who performed stock splits outperformed broad market over 3-, 6- and 12-month horizons.

Bank of America showed that US companies who performed stock splits outperformed broad market (S&P 500) over 3-, 6- and 12-months horizons. Source: BofA Global Research

Tesla secures nickel supplies

Russian invasion of Ukraine significantly disrupted European automotive supply chains. Ukraine was an important producer of wire harness, which is crucial in car production. However, there are also other consequences of the Russia-Ukraine war that have more global implications - skyrocketing material prices. One of crucial industrial metals in production of EVs, more precisely EV batteries, is nickel that saw its price surge after the beginning of war as Russia is an important producer. Harsh sanctions imposed on Russia and expectations of even more sanctions may limit availability of nickel to companies from Western countries. However, it was reported this week that Tesla have been securing nickel supplies for some time, striking agreements with major producers. One such agreement was signed with Vale, who agreed to supply Tesla with nickel from its Canadian operations. While this means that Tesla may avoid shortage of the metal, it does not mean that producer costs, and ultimately vehicle prices, will not increase.

Impact of Chinese lockdowns

Source of concern when it comes to Tesla are operations in China. The US EV manufacturer has a factory in Shanghai, which is currently the biggest hotspot of the new Covid outbreak in China. Strict lockdown was imposed in the city, which forced Tesla to suspend production at its factory, starting from Monday. Suspension is expected to last until Friday (April 1, 2022), when the first phase of Shanghai lockdown is expected to end. Of course, it cannot be ruled out that if pandemic situation in the region is not contained, lockdown may be extended with strict lockdown, where residents are barred from leaving their homes, remaining a possibility. This would be a blow to Tesla as the Shanghai factory accounted for half of its car production in 2021. However, media reports suggest that Tesla is already exploring ways to maintain production even in such a scenario - the company began asking employees whether they will be willing to work in closed-loop conditions, meaning frequent testing and basically a bubble-like environment at the plant.

Q1 deliveries figures to be release soon

Today is the final day of the first calendar quarter of 2022. While investors will have to wait until April 26, 2022 for a release of Q1 2022 earnings report from Tesla, quarterly delivery figures are usually reported shortly after quarter ends. It is expected that Tesla will release vehicle delivery data for Q1 2022 this weekend. Market expects Tesla to report deliveries of 310-320 thousand vehicles in the first three months of 2022, up from 184.8 thousand in Q1 2021. This would also be higher than Q4 2021 deliveries (308.6 thousand). It should be noted that the first quarter of the year is usually the best for the company in terms of deliveries so if expectations are met or exceeded, it could bode well for the remainder of 2022.

First quarter tends to be the weakest for Tesla in terms of deliveries. However, the market is expecting the company to report Q1 2022 deliveries on par or slightly above Q4 2021 deliveries. Source: Tesla, XTB Research

A look at the chart

Shares of Tesla (TSLA.US) dropped after the launch of the Russian invasion of Ukraine in late-February. However, this drop was quickly halted and stock managed to return above $770 support zone. After a brief correction a retest of this area was made and once again bulls managed to defend it. As a result a double bottom pattern was painted and recovery was launched. Upward move accelerated following a break above the neckline of the pattern in the $880 area. After a 40% rally, the advance was halted in the $1,110 area. Tesla traders should now focus on whether Shanghai lockdown will be extended or not as well as the upcoming quarterly deliveries data.

Source: xStation5