3 Things to Watch for Tesla in the Second Half - TheStreet

Tesla (TSLA) - Get Report stock has held up to an onslaught of sellers time and time again, but major cracks have started to show in 2019.

Multi-year range support near $250 finally gave way, ushering in a flood of sell orders that eventually took the stock down to a low near $177. Tesla stock has since recovered some of those losses, with Monday's 2.5% rally to $229 helping. 

Just last year, Tesla CEO Elon Musk told shareholders that the company should remain profitable and cash-flow positive with the exception of one-off scenarios (like a large debt repayment, for instance). While Musk has gotten more realistic with his outlooks and forecasts, the one on profitability hasn't quite panned out. 

Once Tesla agreed to raise $2.7 billion in capital in May, it helped stop the stock's fall. Here's what it needs to do to keep shares afloat in the second half of 2019.

Deliveries

Tesla's delivered just ~63,000 vehicles in the first quarter. While impressive given where Tesla's production volume was just a few years ago, it was a disappointment for investors.

In the second quarter, the automaker believes it will deliver between 90,000 and 100,000 vehicles. There should be some pent-up delivery demand from the first quarter, thanks to the company's logistic issues from earlier in the year.

But it will be important to see that demand has not curtailed like many bears are predicting. A shortfall in Q2 deliveries would raise a red flag, particularly after Musk's "leaked" email said, "The reality is that we are on track to set an all-time record."

Q2 deliveries will also be important because of its full-year implications. Coming up short would make it almost impossible for Tesla to deliver on its forecast of 360,000 to 400,000 vehicles in 2019.

Profitability

Tesla generated a massive loss last quarter, losing more than $700 million in the first quarter. Cash flow was negative, too, as the automaker struggled with logistics issues in shipping the Model 3 to Europe and China.

The capital raise took the immediate heat off the company, but investors want to know that Tesla can sustain itself.

Last quarter, the company missed on earnings and revenue expectations, dealing a tough blow to investors. In its quarterly letter to shareholders, the company wrote, "As the impact of higher deliveries and cost reduction take full effect, we expect to return to profitability in Q3 and significantly reduce our loss in Q2."

A surprise profit could send Tesla stock ripping, while a larger-than-expected loss could send it reeling. That's especially true if Tesla fails to turn a profit again in Q3.

Trading Tesla Stock

Daily chart of Tesla stock.

Deliveries and profitability are two vital things to watch for with Tesla in the second half of 2019. The third thing to watch? Its stock price.

The rally in Tesla stock on Monday did more than give it a slight bump. It launched shares out of a sideways wedge, over the 50-day moving average and over downtrend resistance. This was a fairly significant move even if TSLA stock isn't posting a robust rally.

Ideally, Tesla stock will hold up over all of these levels -- essentially meaning that it has to stay above $220. Below and more technical damage is possible. On a continued rally, I want to see if Tesla can penetrate the $250 to $260 area. This was a long-time level of range support that gave way in April and acted as resistance in May.

I expect the first test of this area to act as resistance again, but earnings could be the real driver for whether it acts as support or resistance.

What Stocks and Sectors Investors Should Watch During the Second Half of 2019

This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.