What you'll learn:
➤ How did Tesla (TSLA) do recently?
Tesla (TSLA) has witnessed a notable decline in its stock price following the release of its second-quarter financial results on July 19. Investor concerns regarding shrinking gross margins have outweighed the company’s impressive earnings and revenue figures.
In August, Tesla’s shares tumbled by approximately 16%. Despite this downturn, seasoned Tesla supporter and Wedbush analyst, Daniel Ives, expressed strong confidence in the company. On August 16, he appeared on CNBC, asserting his “firmly bullish” stance on Tesla.
Ives perceives the recent stock dip as a post-quarter adjustment, primarily driven by apprehensions related to China. He not only views this as a potential opportunity but also describes Tesla as a “table pounder at these levels.”
Tesla’s second-quarter report showed a 20% surge in profits, amounting to $0.91 per share, alongside a remarkable 47% rise in revenue, reaching $24.93 billion. These figures exceeded analysts’ projections.
However, Tesla’s overall gross margins dipped to 18.2%, down from 19.3% in the previous quarter (Q1), marking a decline of 682 basis points compared to the prior year. Auto gross margins, excluding regulatory credits and leases, also decreased from 18.3% in Q1 to 18.1%.
These figures fall short of the 20% gross margin “floor” that Tesla had previously aimed for. Prior to the earnings report, numerous analysts had sounded alarms about these declining margins.
Elon Musk, Tesla’s CEO, addressed these concerns during the Q2 earnings call, emphasizing that the short-term fluctuations in gross margins and profitability are of minor consequence when considering the long-term trajectory.
He firmly believes that autonomy in vehicles will render these figures inconsequential in the future.
➤ Why did Tesla (TSLA) drop after earnings?
Tesla faced a substantial decline in its stock price following the release of its second-quarter earnings report. On July 20, TSLA experienced a significant drop of 9.7%, with shares trading at $262.90.
This decline not only pushed the stock below the 21-day moving average but also eroded the gains it had made during the month of July.
Leading up to the earnings report, Cathie Wood, the renowned investor and founder of ARK Invest, divested large portions of her firm’s Tesla stock holdings in consecutive trading sessions. She sold more than 73,000 Tesla shares before the EV giant disclosed its second-quarter financial results.
Adding to the mix of concerns, Morgan Stanley analyst Adam Jonas, in a report on July 24, predicted that Tesla’s annual automotive gross margins would likely remain below 20% until 2025.
Furthermore, Tesla made headlines on August 7 with the announcement of Chief Financial Officer Zachary Kirkhorn’s resignation. In filings with federal regulators, Tesla disclosed that Vaibhav Taneja would assume the roles of CFO and chief accounting officer, effective from August 4.
In its statement, Tesla acknowledged Kirkhorn’s substantial contributions during his tenure, expressing gratitude for his role in the company’s remarkable growth and expansion.
On August 8, Bernstein analyst Toni Sacconaghi offered insights into Kirkhorn’s departure, describing it as a development that is “tough to spin positively.”
Sacconaghi also noted that while Tesla is an undoubtedly demanding environment, it does not necessarily imply that investors should be overly alarmed. Kirkhorn’s decision to step down appears to be a personal one, rather than a sign for investors to flee the company.
➤ Is Elon Musk affecting Tesla’s price?
The world of Tesla and its enigmatic leader, Elon Musk, is never short of excitement. Their fates are inextricably intertwined, and recent events have added intriguing layers to their story. Elon Musk made waves when he acquired Twitter on October 28, a staggering $44 billion investment.
This move prompted concern among some long-standing Tesla stock enthusiasts, who feared that Musk’s attention, along with the controversies surrounding Twitter, might cast a shadow over Tesla’s performance.
However, Elon Musk took steps to alleviate these concerns. He made a strategic hire by appointing Linda Yaccarino, formerly NBCUniversal’s advertising chief, as the new CEO of X Corp, previously known as Twitter.
Musk clarified that Yaccarino’s primary focus would be on overseeing business operations, allowing him to dedicate his energies to product design and pioneering new technology.
This move was perceived by many, including analyst Ives, as a measure to reduce the distraction risk surrounding Tesla’s narrative.
As Tesla shares experienced a post-earnings decline, the perennial question resurfaced: When is the optimal time for investors to buy or sell Tesla stock?
Tesla and Musk have placed substantial bets on the success of the Cybertruck and autonomous vehicle technology.
They also anticipate potential advantages from the Inflation Reduction Act (IRA).
➤ Tesla outperformed the market (by a lot)
Elon Musk’s influence on Tesla has been nothing short of transformative, single-handedly revolutionizing the automotive industry by compelling it to embrace electric vehicles.
This has been a driving force behind Tesla’s extraordinary stock performance over the years, especially during its meteoric rise from mid-2019 to late 2021.
Although the stock faced a bear market low, plummeting to $101.84 on January 6, it staged a remarkable comeback until the first-quarter earnings report.
On April 19, Tesla released its first-quarter earnings, revealing a substantial decline. Revenue fell short of expectations, and the company’s profit margins dipped below 20%. This decline in profitability was attributed to an aggressive strategy of slashing prices in the early part of 2023.
In terms of financials, Tesla reported a 24% increase in revenue to $23.33 billion, with earnings per share (EPS) at 85 cents. This marked a 20% decrease compared to the previous year.
Tesla’s total gross profit amounted to $4.5 billion, with a profit gross margin of 19.3%. This figure represented a decline from 23.8% in Q4 and a stark contrast to the 29.1% margin from the previous year.
➤ How is Tesla cutting prices?
In 2023, Tesla implemented an assertive strategy of price reductions, affecting markets worldwide.
This cost-cutting approach commenced in January and continued through April, with one notable exception – China, where Tesla had significantly reduced prices late in October, only to further reduce them in early January.
On August 13, Tesla carried out another round of price cuts in China, targeting two Model Y vehicle trims. Additionally, the company introduced a limited-time insurance subsidy for Model 3 buyers in the Chinese market.
This move coincided with rumors swirling about the impending release of an updated Tesla Model 3, internally referred to as Highland. Speculation suggested that this release was imminent in China.
On August 14, Tesla unveiled new, shorter-range versions of its Model S and Model X vehicles in the United States. These changes brought about a substantial reduction in the base price of its luxury electric vehicles, amounting to a $10,000 decrease.
In a further effort to dominate the electric vehicle market, Tesla intensified the competition by significantly increasing discounts on its luxury Model S and Model X vehicles in China on August 16.
Meanwhile, the upgraded Model 3 from Tesla is poised to enter the Chinese market within a month, according to reports from local media outlet China Securities Journal. The company has already begun accepting reservations for this new Model 3 iteration.
➤ What are Tesla’s long-term goals?
Elon Musk has long championed Tesla’s Full Self-Driving (FSD) technology, highlighting the immense value it could bring to the brand.
During the Q1 earnings call, Musk emphasized the tremendous potential of autonomous cars, stating that the “value of a car that is autonomous is enormous.” He also noted that the improvements in the FSD beta were “really quite dramatic.”
Musk boldly stated that the automotive industry was unmistakably moving towards full autonomy, even suggesting that it might be achieved as early as this year.
Moreover, Musk confirmed plans for a highly anticipated event in 2023 – the delivery of the Cybertruck. Tesla’s Q2 financial report indicated that the Cybertruck remained on track for initial production later in the year at the Gigafactory in Texas.
The company was actively conducting tests on Cybertruck vehicles worldwide to finalize certifications and validations.
Musk’s enthusiasm for the Cybertruck was evident when Tesla shared a photo of the first Cybertruck produced at its Austin plant on July 15. This news resulted in a 3.2% surge in Tesla’s stock value.
Tesla also hinted at progress in its next-generation platform. Since the Tesla Investor Day in March, details about this platform had been limited. However, at the annual shareholder meeting, Tesla unveiled a vehicle silhouette, hinting at further developments on the horizon.
➤ Tesla unveils the semi-truck
However, in March, Tesla initiated a voluntary recall of 35 semi-trucks due to a parking brake issue.
Tesla commenced deliveries of its long-haul Semi trucks to PepsiCo (PEP) in December. Additionally, Elon Musk hinted at plans to establish a comprehensive charging network tailored for long-haul trucks.
While Musk did not disclose the exact pricing of the eighteen-wheeler, Tesla’s Semi boasts an impressive estimated range of 500 miles per charge and can accelerate from zero to 60 mph in just 20 seconds, according to Tesla.
The company has ambitious production goals, aiming to deliver 50,000 units of the Semi in 2024.
Before the recall, PepsiCo had intentions to deploy 36 Tesla Semi trucks, with 15 designated for use in Modesto and 21 in Sacramento. Pepsi initially placed an order for 100 electric vehicles when the Semi was first announced back in 2017.
➤ Is Tesla a buy (or sell)?
As for Tesla’s stock (TSLA), it had a defined cup-with-handle buy point at 299.29, stemming from a deep consolidation period dating back to last September.
However, TSLA has been experiencing a downturn since the release of its second-quarter financial results on July 19. During the previous week, Tesla’s stock price dropped by 4.4%, reaching 242.65.
This movement undercut support levels set by the stock’s 50-day and 10-week moving averages, with the price finishing August 11 at 6.7% below these crucial technical levels. This deviation of more than 2% below the 10-week average represents a significant sell signal, according to analysis by IBD.
Tesla’s descent continued into the subsequent week, with an 8% drop. Notably, Cathie Wood’s ARK Investment Management sold a total of 119,030 Tesla shares over four consecutive trading sessions.
On Tuesday, Wood offloaded Tesla stock worth $438,896, as per the company’s daily trade disclosures. Furthermore, Cathie Wood divested $2.15 million in TSLA on Monday and continued to sell, with the ARK Invest firm disposing of $7.7 million in Tesla stock on Friday.
This selling spree initiated with the sale of over 76,000 shares for about $18.75 million on Thursday.
In a separate development, David Tepper’s Appaloosa Management, as disclosed in an SEC filing, sold its stake in Tesla stock during Q2. Appaloosa had initially entered into the Tesla position in Q1.
Currently, Tesla stock holds the fourth position in IBD’s automaker industry group, boasting a 95 Composite Rating out of 99. It possesses an 84 Relative Strength Rating, and its EPS Rating stands at 94 out of 99.
However, the market’s status indicates that it is in an “uptrend under pressure.” As a result, Tesla stock is not currently recommended as a buy.
(Source: IBD)
