ETFs
Can Tesla ETFs Maintain Their New Winning Momentum? – July 9, 2024
Shares of the electric vehicle (EV) giant Tesla Inc. (TSLA Quick QuoteTSLA – Free report) has struggled a lot lately due to margin pressure, stiff competition, and a general slowdown in its business growth. However, the odds are turning in Tesla’s favor, with its stock up 44.7% in the last month (as of July 5, 2024). Shares are now hovering around a six-month high.
Despite this strong share price rally, Tesla shares have fallen 6.7% over the past year. TSLA even became one of the worst-performing stocks in the S&P 500 during the early part of this year. However, a rebound story appears to be in the works for a multitude of reasons. Recent performance now leads one to wonder if it is time to buy Tesla.
Let’s go a little further.
Tesla sets new second-quarter delivery record
In early July, Tesla reported better-than-expected deliveries for the second quarter of 2024. The numbers indicate an improvement in demand that could help ease concerns about excess inventory of its flagship Model 3/Y (read: Take Advantage of Tesla’s Better-Than-Expected Q2 Deliveries With These ETFs).
The leading electric carmaker delivered 443,956 cars (422,405 Model 3/Ys and 21,551 other models) worldwide in the second quarter of 2024. Although this was a 4.8% decrease from the same quarter last year, the delivery figures were better than the 436,000 expected by analysts.
The annual sales decline reflects increased competition in the electric vehicle market. Electric vehicle sales have slowed, leading investors to demand that each car sold be more profitable than before. Tesla produced 410,831 vehicles (386,576 Model 3/Y and 24,255 other models) during the quarter.
Tesla’s Foray into Artificial Intelligence
Tesla has been transforming itself from a carmaker to a technology and robotics company, with a focus on artificial intelligence (AI) and self-driving technology. Tesla is betting heavily on driverless software and artificial intelligence to try to revive its sales.
The automaker plans to introduce the “robotaxis,” a self-driving car without a steering wheel or pedals, on August 8. The next-generation vehicle is widely seen as key to the electric automaker’s survival, especially as competition in the electric vehicle space intensifies.
In late April, Tesla CEO Elon Musk announced that the company would spend about $10 billion this year on AI training and inference. Tesla’s focus on AI and autonomous driving is seen as potentially transformative in the current context of AI buzz.
Is Tesla expecting an improvement in its profit margins?
Analysts like Morningstar Inc.’s Seth Goldstein are forecasting Tesla’s profit margins to improve, thanks to lower manufacturing and raw material costs, Bloomberg reported. He expects the company to “return to profit growth” next year.
Tesla is expected to grow 35.08% next year, compared to an expected growth of 24.50% next year. Automobile – Domestic Industry and an expected growth of 9.31% for the S&P 500. Over the next five years, Tesla’s growth rate is expected to be 21.60%, compared to a growth rate of 15.40% for the underlying industry.
The electric vehicle sector is gradually gaining momentum
Electric car sales remained robust in the first quarter of 2024, growing 25% year-on-year. Since 2021, electric car sales in the first quarter have typically accounted for 15-20% of total global annual sales, according to the IEA.
Most of the sales growth in the first quarter of this year came from China. Electric vehicle sales in China are expected to grow by nearly 25% in 2024, followed by 20% in the United States, according to an IEA report.
It is worth noting that key growth in relative terms occurred in the first quarter outside of the major electric vehicle markets, where sales increased by more than 50%, indicating a rapid transition to electromobility in countries around the world.
The IEA now predicts that electric vehicle sales in 2024 will see a 20% increase compared to the previous year. And electric vehicles are expected to account for more than a fifth of total car sales.
A wall of worry?
Political changes, including potential policy changes under the Trump administration (if he wins the November election), are adding uncertainty to the electric vehicle market as Trump promotes fossil fuels. And the Cybertruck, Tesla’s first new consumer model in years, has been slow to gain traction.
The Bloomberg Electric Vehicle Price Return Index reflects a tough year for EV stocks. EV makers are facing huge challenges from the funding crunch. Some analysts and fund managers are stressing the need for industry consolidation and improved profitability before the sector can stabilize, according to the Bloomberg article.
But Trump is known for his tariff wars against China. If he wins, he is expected to impose massive tariffs on Chinese electric vehicle makers, which should help Tesla position itself better.
What do technical indicators say?
In fact, Tesla recently saw its 14-day simple moving average (SMA) cross above its 50-day simple moving average, suggesting a near-term bullish trend. Tesla stock is also seeing a positive reading from its parabolic SAR, further confirming its near-term bullish trend.
But in the long term, caution is warranted as Tesla stock’s relative strength index hovers around 80. The stock is considered overbought. Overall, it looks like Tesla is a good short-term bet, but it will take more time to present Tesla as a good long-term bet. Tesla currently has a Zacks Rank #3 (Hold).
Image Source: Zacks Investment Research
Focus on ETFs
Investors looking to profit from Tesla’s short-term bullish trend can purchase ETFs with a substantial allocation to the luxury automaker, as the ETF approach minimizes company-specific concentration risks. These ETFs include Direxion Daily TSLA Bull 1.5X Actions (TSLL Quick QuoteTSLL – Free report) , Discover Kevin’s Pricing Power ETF fund (Quick quote PPPP – Free report) , Select Sector Consumer Discretionary SPDR Fund (Quick Quote XLYXLY – Free report) , Simplify Volt Robocar Disruption and Technology ETF (Quick Quote VCARVCAR – Free report) And ARK Innovation Exchange Traded Fund (Quick quote from ARKKARKK – Free report) .