Tesla (NASDAQ: TSLA) Is Setting Up For A Major Breakout

Who would have thought that Tesla (NASDAQ: TSLA), king of the crazy moves, was capable of trading in a narrow range? For a company that put in a 600% rally in less than six months, their shares sure have been comparatively quiet of late. However ‘quiet’ and ‘narrow’ are for Tesla relative terms, as shares have still bounced around a 10-30% range over the last six weeks. But this range is tightening by the day, with higher lows starting to build up against a sloping downtrend that’s been in play since their August peak.

For those investors who are still in the game after this summer’s sizzling run or for those thinking about getting involved for the final quarter of the year, there’s plenty to be excited about.

Strong Chinese Demand

While the recent rally was underpinned by a strong bout of euphoria and a risk-on sentiment that swept across tech stocks, there are several fundamental catalysts coming down the pipeline that will drive the next move up. Demand out of China has been surprisingly strong, with Wedbush forecasting incoming Q3 deliveries to be around the 140,000 mark versus the 136,000 consensus. In a note to investors late last month, they said "the clear standout this quarter yet again is the massive underlying demand coming out of China. We have seen demand surge in China for Model 3's in this key region with Giga 3 firing on all cylinders heading into the year-end.”

Analyst Dan Ives is expecting to see some solid numbers in the company’s upcoming earnings report as well as strong forward guidance. Based on this recent uptick in demand, delivery number estimates for the year should be coming in around the 500,00 mark. Considering how bleak the outlook was in Q1 when factories were shutting due to COVID, this would be a remarkable turnaround and a big feather for Musk’s cap.

Musk and Tesla are doing everything they can to drive demand from their side. For starters, in the past week they’ve cut their Model 3 prices in China by about 10%. This move was designed to add some fuel to the fire for demand as China continues to recover from the coronavirus pandemic. In the medium term, it’s thought the plan is to reduce prices globally so as to open Tesla up to a wider market. These can only be good things as the company continues to strengthen its footprint in the electric vehicle space and become the benchmark that all others are judged against.

Hyper Growth Ahead

On Wednesday of this week, New Street Research gave bulls another reason to celebrate as they lifted shares to a Buy rating from Neutral. Analyst Pierre Ferragu also slapped a street high price target of $578, which implies an upside move of more than 35%. It would also put Tesla shares well above August’s all-time-high of $500.

Notwithstanding the crazy summer just gone before us, Ferragu believes Tesla has a "decade of hyper-growth ahead with no credible competition on the horizon." Of note, the company now has models across all automotive tiers, from SUVs to sedans to trucks.

Any investors still slow to get involved or think shares are a little frothy here, will get comfort from his final comments; "Amazon has traded in the 50x-100x earnings range for over a decade, and we expect Tesla to follow suit". With shares forming a pennant and a tightening range set for a collision course in the coming weeks, there’s every reason to think that a breakout to the north is coming.