Invest in the future of Tesla, without touching $TSLA

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by iKalculated

Tesla delivered 367,500 cars in 2019. Compare this figure with Toyota, who delivered 2,383,349 vehicles in 2019.

Tesla spends approximately $16,000 on materials per Model 3. If Tesla matches Toyota numbers, they will be spending approximately $16,000 x 2,383,349 = $38,133,584,000 on materials per YEAR on each Model 3. The Model 3 is their smallest, ergo least material intensive vehicle in the Tesla fleet. $38 Billion is the LOWER end of materials expenditure by Tesla once they reach mass market penetration.

Why does Tesla Material Cost Matter, and how can I profit?

Tesla buys their Aluminum and Steel required to build the chassis from someone. In the model S and X, the chassis is composed (over 90%), of Aluminum. Meanwhile, the Model 3 uses a cheaper steel + aluminum chassis to lower costs. Looking across several obscure sources, I have found that ALCOA [NYSE: AA] supplies Tesla with Aluminum. Lets take a look at Alcoa’s Profile:

A snapshot of Alcoa stock.

Alcoa has been hammered as of late. With a high of almost $60 a share 2 years ago [2018], the stock is now sitting at $11.50 at time of writing. Let’s take a closer look at the play:

Short term technicals show a strong uptrend, and buy signal. The stock is up 50% from $7 to $11 in 2 months.

Let’s take a look at options activity. Through my screener, I found an interesting block of trades:

Huge Bullish Option Activity on AA being above $11 by October

Looking closely, the same guy picked up a TON of $AA calls expiring October, expecting $AA to be above $11 by then. Currently, $AA is at $11.51. He has already made close to 200% gains since this order was placed.

Following the month-to-month trend, I propose:

Short Term earnings play: AA $15C OCT 16 2020, priced at 0.58c at time of writing.

By playing $AA, you are playing $TSLA. How? Assume that 10% of materials cost is Aluminum from Alcoa. 10% of $38 Billion sits at $3.8 Billion, almost DOUBLE Alcoa’s current market cap of $2.2 Billion:

$2.14 Billion Market Cap

And due to the long-term Tesla growth, I propose:

Long Term growth play: AA $25 JAN 21 2022, priced at 0.80c at time of writing.

TL,DR:

Alcoa [AA] Supplies Tesla with Aluminum, a key component in all their cars. They have been hammered for the past few years, but are showing a promising uptrend in the past few months.

Short Term earnings play: AA $15C OCT 16 2020, priced at 0.58c at time of writing.

Long Term growth play: AA $25 JAN 21 2022, priced at 0.80c at time of writing.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

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