Investors Look Past Tesla Earnings and See a Brighter Future
The electric vehicle company is both an exciting and a frightening investment.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Wednesday was a day for wild reversals. The major indices traded sharply lower in the morning, roared higher in the early afternoon and ended mixed by the closing bell.
The Nasdaq 100 and key components Nvidia NVDA, Microsoft MSFT, Alphabet GOOGL, Meta Platforms META and Amazon AMZN have all fallen below their respective 50-day moving averages (blue). The once-heralded names lost between 0.5% and 3% on Wednesday.
In the midst of Wednesday’s market turmoil, Tesla held serve, gaining about 2% on the day. The stock demonstrated good relative strength after Tuesday’s sharp decline.
Tesla has tremendous support in the $200 area. This is the approximate point of the stock’s breakout from a rounded bottom pattern (shaded yellow). That support area coincides with the stock’s 50-day (blue) and 200-day (red) moving averages, which are located in that vicinity.
Tesla’s earnings came up well short of estimates, and a contraction in gross margins was concerning. But investors reacted positively to the Austin, Texas-based EV manufacturer’s conference call, much of which focused on areas other than EV sales. .
For example, investors may be underestimating the potential impact of full self driving (FSD). According to one Piper Sandler analyst, “bullish tweaks to the FSD forecast can easily overwhelm all other considerations.”
An analyst from Stifel also chose to accentuate the positive: “Energy generation and storage revenue easily beat expectations. FSD and Robotaxi impact will be critical value drivers.”
The energy generation and storage segment is a wild card here. Revenue from this segment doubled over the past year, contributing $3 billion to the just-ended quarter. Energy generation and storage now comprise 12% of Tesla’s revenue, up from 6% in the year-ago quarter.
That promising growth can be compared to the growth in Apple’s services division. When Apple’s product sales growth began to soften, the services division stepped up in a big way.
Not everyone was enthralled with Tesla’s conference call. Jeffries maintains a price target of $165, and UBS has a sell rating with a price target of $197.
If you view Tesla as just an automotive company, then some negativity is warranted.
If you consider Tesla to be an AI play, the equation changes. Now, factor in energy generation and storage, Robotaxi, Optimus and FSD. It’s difficult to gauge how big of a role each of these will play in the future. It’s impossible to know for certain what other products may enter the mix.
That’s what makes Tesla both exciting and a bit frightening. Analysts have the difficult task of trying to understand cutting edge products that are still in development.
Tesla will always have naysayers. I recall that the the hashtag #TSLAQ was popular a few years ago. Some investors were openly rooting for the company’s demise, claiming that Tesla was basically a scam.
Over the past five years, shares of Tesla have gained 1,349%, and I haven’t seen a #TSLAQ hashtag in years. Tesla has proven its ability to execute CEO Elon Musk’s vision, regardless of whether analysts and investors can grasp that vision. We’re staying long and maintaining our price target of $300.
At the time of publication, Ponsi was long TSLA and APPL.
