Why Tesla shares are the ones to watch after the US close today

The electric vehicle (EV) manufacturer is hoping for increased deliveries in an increasingly competitive market against far bigger carmakers who are in the fast lane to take market share.

Tesla founder and CEO, Elon Musk, has promised two million deliveries this year and is cutting prices to maintain the company’s lead in the EV market. Cutting prices eats into margins, but if, as Musk hopes, less expensive cars bring in more demand, then the margin shortfall is offset.

IGTV’s Jeremy Naylor explains that if Tesla fails to live up to its hopes and aspiration for its performance, against increased competition, shares could crash to recent support a $164.

(Video Transcript)

EV car maker Tesla will be the stock to watch this evening as it reports its first quarter (Q1) numbers. It's all-sessions on the IG platform which means you can trade it after the bell tonight.

Analysts are looking for earnings of 86 cents per share on a 20% rise in revenue compared to the same period last year, to $23 and three quarter billion.

Now there are several things going on with the company itself and the market into which it's selling. First of all earlier this year, Elon Musk issued a target for the company to produce two million cars this year. Now, bearing in mind, Tesla is the world's most valuable car maker. Toyota produced eight million cars last year but given the current economic environment demand is really what preoccupies the market now to support demand.

Tesla has repeatedly cut its prices most recently today, which was the sixth such announcement this year. Then cutting prices eats into margins. Tesla cannot be seen to be cannibalising its own profit margins at the expense of its own market share trying to sell into an increasingly competitive electric vehicle market into which Toyota as just one example of some big car makers out there is racing to deliver increased production.

Share price chart

Let's take a look at the share price chart because this is interesting. It's currently trading on the IG platform on the session today. Premarket, it's down 2% at $180.44. Now, if we get a disappointment tonight and this stock drops, this line of support down here was established back on the 13th of March at $164.02. I think is very, very vulnerable into which they could end up selling down into levels not seen since the middle of January.

For example, on the flip side, if Elon Musk does pull a rabbit out of the hat and he proves that his strategy is right and deliveries are up and profits rise and margins are sustained overall in the longer term in terms of its increased demand, helping it bring more money onto the profit and loss account, then we could well end up seeing this area up here, the 200 day moving average at $212.95 being the target to watch out for.

Trading Tesla

So it really is a question of what you believe is coming down the pipe. The numbers will come out after the bell tonight and you'll be able to trade this. Now, if you're short on this, going into the numbers, you'll stop here, it goes above the 50-period moving average, which is this green line up here. So you'll stop at around about and $195 - 180 is where we're trading.

And I think this line is vulnerable down here at 164. If you think that Elon Musk and the company is likely to pull, as I say, a rabbit out of the hat and prove that things are going well, your stock goes underneath this level down here, which is 100 period moving average around about $170 -180 is where we're trading. And I think this area up here is your price target.

So it's just a question of how you believe this will all develop. And let me just quickly remind you as well after the bell tonight, when we hear the press conference, Elon Musk will be delivering that through Twitter. No surprises there.