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Tesla Hits New All Time High on Deal for 400 Charging Stations in China

Aug 31,2014  Company News  Comment: 1

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Philadelphia, Pennsylvania – (StockNewsDesk) – 08/31/2014 — Tesla Motors, Inc. inked a deal with China United Network (China Unicom) to set up 400 charging stations for Tesla vehicles across the country in 120 Chinese cities.

China Unicom is actually China’s second largest mobile carrier, so the announcement was a surprise. In addition to the 400 charging stations at China Unicom stores, there will be supercharging stations in 20 locations.

Tesla has already been making inroads into the Chinese market, where its vehicles are seen as a status symbol. The company opened its first store in Beijing in November 2013 and started shipping its first vehicles in April 2014. Already, there are waiting lists for Tesla vehicles that the company is working through. The company has plans to open 12 more stores in China this year.

Of course, integral to Tesla gaining more market share, beyond simply being luxury vehicles, is building out its network of charging stations. This alliance with China Unicom is an important first step in its China strategy, and investors responded to the news enthusiastically as the stock jumped to all time highs. Tesla has also inked deals with Soho China Ltd and China Yintai Holdings Ltd to build more charging stations, although more details have not yet been announced. However, these deals are expected to be smaller than its agreement with China Unicom.

The motivation for China Unicom in this deal seems to be the ability to tie its brand to a popular and highly regarded brand, like Tesla. Additionally, Tesla vehicle owners who charge their cars at a China Unicom station may become customers. Per the terms of the agreement, China Unicom will provide the space and Tesla will provide the charging equipment. Like charging stations in the US, charging is provided free of cost.

Tesla Hits New All Time High on Deal for 400 Charging Stations in China

Another potential boost for Tesla in China is the government’s recent decision to promote electric vehicles as it becomes increasingly concerned about pollution levels. China has already curtailed the number of gas powered vehicles that are allowed on the road at anytime, while also offering subsidies to electric cars. Further measures include waiving the purchase tax on electric vehicles, as well as mandates for government vehicles to be electric.

Despite these aggressive efforts by the government to promote electric cars, adoption has been slow due to the lack of charging stations. In addition to Tesla, BMW has also begun building charging stations across the country. The government’s goal of 5 million electric vehicles on the road by 2020 is only possible if a charging infrastructure is there. As a state sponsored entity, China Unicom is willing to subsidize the charging stations in order to help meet this target.

As noted above, the news was enough to push Tesla up to all time highs. Below is the six month daily chart:

Tesla six month daily chart 29Aug

Tesla has now completely recovered from the sell-off in high beta, momentum stocks from March to mid May, when the stock slid a little more than 30%. At the time, many market participants were sure that the stock had topped. The move to new highs on strong volume invalidates this topping pattern. Despite the move to new highs, there continues to be much doubt about the company’s prospects as 25% of the stock’s float is short.

This doubt and continued growth with strong EPS and Sales growth, indicate that this move higher has legs, and traders with high risk tolerance and short term timeframes should consider buying this breakout. On a longer term timeframe, the stock has been on a smooth uptrend, and this latest dip was another buying opportunity. As long as this bull market continues and the company does not seriously stumble, there is little reason to be bearish on the stock.

Here is the stock chart since IPO:

Tesla stock chart since IPO

As intense and parabolic as the move has been, this breakout could lead to another huge advance in the company’s stock price as shorts are squeezed and momentum traders buy in. Additionally, the entry is low risk as any violation of the breakout would stop out the trade.

 

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