
Tesla Motors (TSLA) Case Study
Nick Schmidt
Nick Schmidt is a co-founder of TraderLion and Deepvue with over 10 years of market experience. Adopting a “less is more” philosophy, he focuses on weekly charts with an emphasis on price and volume.
March 27, 2023
In 2013, Tesla’s share price increased nearly 330%, turning $100,000 into $329,800 in just 12 months. Catching a market leader like this can change your financial future , and that is why it is absolutely critical to study the biggest winning stocks, like Tesla, to identify similar opportunities in the future.
The biggest winning stocks like Tesla often come from recent IPOs, which is why it is also important to understand the IPO Lifecycle and learn how to identify these winners early on during their moves.
In this case study, we look at what fueled Tesla’s spectacular run and how we could have traded the move.
This blog uses concepts developed by the Lifecycle Trade Team who have studied thousands of IPOs to distill the qualities that lead to monster moves and create super growth stocks. You can learn more from them directly in the IPO Masterclass.
How It Began
Tesla IPO’d in 2010 and after a brief IPO Advance Phase (IPO-AP), consolidated sideways for over 2 and a half years. During this period, the stock was undergoing its Institutional Due Diligence phase (I-DDP).
Weekly Chart of TSLA in the I-DDP
The I-DDP is a period where the stock is trading sideways and institutions are researching if they are interested in building positions in the stock.
On the other hand, the IPO-AP is the initial advance of a new issue, often being short-lived and round-tripping its initial gains, which is what happened to Tesla.
Daily Chart of the IPO-Ap
Although Tesla’s stock price was range bound, the company was making strong progress and growing rapidly. Elon Musk introduced the Model S and in less than a month, Tesla pre-sold a year’s worth of its planned output, pushing the delivery time for a pre-order of the Model S out over a year.
Tesla also was ramping up its production capacities at its factories and released the Model X. Both models showed stellar performance capabilities, even better than gasoline vehicles in many regards, proving the legitimacy of EVs being able to compete with gasoline vehicles.
Despite Tesla reporting losses quarter after quarter due to aggressive reinvesting for growth, looking past the numbers, Tesla was setting the groundwork for its future success.
When The Move Started
On April 1st, 2013, Tesla gaps up over 11%, breaking out into new all-time highs as Elon Musk, the CEO, reports that the company is now profitable for the first time in its 10-year history.
Daily Chart of the Gap up on Earnings out of the I-DDP
This pivotal moment also marked the ending of the Tesla’s I-DDP, and the start of the Institutional Advance phase (I-AP).
The I-AP is the phase of the IPO’s lifecycle that occurs after the first mature base from the I-DDP, where the stock trends higher for a long period of time. Despite the stock emerging into the I-AP, we must wait for a proper buy point to emerge to take advantage of this new potential big winner.
Luckily, a couple weeks later, the proper buy point emerges as the stock breaks out back into all time highs on April 18th.
Daily Chart
Daily Chart
From the entry point, the stock rallies over 20% for 3 weeks into its next earnings date, where Tesla confirms the CEO’s guidance of its first profitable quarter, reporting $11,000,000 in net income, along with Revenue increasing 83% from the prior quarter and Model S deliveries increasing over 100% compared to the last quarter.
After the earnings announcement, Tesla stock nearly triples within the next 5 months and quadruples over the next 2 years with continued outstanding performance.
Weekly Chart
Now how would you manage a position in TSLA to get the most out of this move?
Referring back to the Lifecycle Trade Ascender Rule Set, the sells would take place as follows:
- July 16th, 2013, when price closed 3% below the 21-day EMA. (½ of position sold)
- October 23rd, when price closed 3% below the 50-day SMA. (¼ of position sold)
- September 2nd, 2014, after price increases over 500% from initial entry. (last ¼ of position sold)
Daily Chart
Weekly Chart
From entry to exit, the trade on Tesla would have netted a phenomenal 254% return over 597 days!
More often than not, big winners like Tesla come from recent IPOs with new and innovative technologies that can change the world. A few examples include Netflix, Amazon, Google, Facebook, and many others.
If you’d like to learn more about these concepts and master trading IPOs, check out the IPO Masterclass, where we dive into much more detail on how to find and catch the biggest winning stocks.
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