Trade Alert: EVs

Three bullish bets on beaten down names in the sector.

Betting On Three EV-Makers

The first one is the most obvious one, Tesla (TSLA 0.00%↑). Its shares are down about a third year-to-date (YTD). First it missed its Q4 earnings, and then it posted an 8.5% year-over-year decline in 1st quarter deliveries, driven in part by shutdowns of its Giga Berlin factory. Tesla shares were trading at close to $250 at the end of 2023; our bet below is that they’ll be trading at over $205 next January, and if we’re right, we’ll make a ~200% gain.

The second one is a less well-known American EV manufacturer whose shares are down more than 50% YTD, for similar reasons as Tesla (lowered sales projections for this year). And yet, I’ve gone from seeing none of their vehicles locally to seeing three in the last week or so, including one of their pickup trucks yesterday. For years, when Tesla bears talked about the company going bust, one thing that convinced me they were wrong was the number of Tesla cars I saw kept going up. It’s gotten to the point where they’re ubiquitous where I live, in Bergen County, New Jersey, just across from New York City. Seeing this other American EV maker’s vehicles seems auspicious for them. Unlike Tesla, this one is currently losing money, but it’s also a lot cheaper than Tesla on an Enterprise Value/Sales basis. As with Tesla, we’re betting on a partial recovery in the company’s stock by January (partial meaning considerably less than what it was trading for at the end of last year).

The third EV maker is Chinese and is, in addition to an EV play, a bet on the Chinese economy and a partial hedge on our Tesla bet, as this company is undercutting the price of Tesla’s Model 3 in China.

Details below.

Bullish EV Trade #1

The company is Tesla, and our trade is a vertical spread expiring on January 17th, buying the $200 strike calls and selling the $205 calls for a net debit of $1.63. The max gain on 3 contracts is $674, the max loss is $326, and the break even is with TSLA at $201.63. This trade filled at $1.63.

Bullish EV Trade #2

The company is Rivian (RIVN 0.00%↑), and our trade is buying the $15 strike calls expiring on January 17th for $1.84. The max gain on 2 contracts is unlimited, the max loss is $368, and the break even is with RIVN at $16.84. This trade filled at $1.84.

Bullish EV Trade #3

The company is Xiaomi ($XIACY). Xiaomi is sort of the Chinese Apple—it’s a smartphone maker that decided to get into making cars. Except while Apple abandoned its car project, Xiaomi didn’t. Reportedly, their new factor can build one car every 76 seconds. These cars will retail for about $4,000 less than a Tesla Model 3 in China.

There are no options traded on Xiaomi’s ADRs, so we’ll just buy the shares at under $10, which is less than half of Xiaomi’s 2021 peak share price. This trade filled at $9.93.

Exiting These Trades

For the Tesla trade, I’m going to set a GTC order to exit at about 95% of the spread between the strike prices, or about $4.75. For the Rivian trade, we’ll check back and see where the stock is trading in January. For the Xiaomi trade, I’m going to set a trailing stop limit order at about 20% of its last price.