After a sequence of six consecutive declines, Tesla’s stock (NASDAQ:TSLA) rebounded at the start of the week, fueled by positive developments such as the long-anticipated launch of the Cybertruck and updates to the Model 3.
On Monday, Tesla’s stock recorded a gain of over 7%, recovering its losses. Baird analyst Ben Kallo pointed out multiple favorable factors contributing to the positive sentiment surrounding the electric vehicle (EV) manufacturer.
Production of the Cybertruck has commenced, ahead of an anticipated delivery event in the third quarter. Promoted as “the most powerful tool we have ever built,” the Cybertruck boasts a payload capacity of up to 3,500 pounds and adjustable air suspension. The Cybertruck’s presence has generated additional buzz with global sightings. Social media users have shared images of the vehicle on an Icelandic glacier, possibly part of a promotional campaign leading up to the launch.
Other sightings have captured the Cybertruck near Tesla’s facilities in Fremont and Austin. Enthusiasts of Tesla have been eagerly awaiting the unveiling of an updated Model 3, internally known as Project Highland. The prospect of the upcoming Model 3 refresh, combined with recent price reductions and incentives for existing models, has driven anticipation. Reports from China indicate that preorders are already underway at select Beijing showrooms.
Market Performance of Tesla Stock
The stock gained another 4% in pre-market trading on Tuesday. Tesla, currently ranked as a Zacks Rank #3 (Hold), began 2023 on a high note. After hitting a low point in the first week of trading, TSLA’s value more than doubled within slightly over a month. The stock then underwent a consolidation phase until May, at which point another surge propelled it to nearly double in value by mid-July.
Following the latest earnings report, concerns about declining margins led to a selloff, causing TSLA to enter a bear market (more than a 20% drop from the recent peak). However, the stock remains up nearly 90% for the year and is trading above its 200-day moving average. TSLA seems to have found support at a previous breakout level. The Monday increase of over 7% on higher-than-average volume suggests renewed bullish sentiment.
Tesla operates within the Zacks Automotive – Domestic industry group, which currently ranks in the top 28% of approximately 250 industries. Given this industry group’s placement in the upper half of all Zacks Ranked Industries, it’s anticipated to outperform the market in the next 3 to 6 months. Statistical analysis demonstrates that approximately 50% of a stock’s price appreciation can be linked to its industry categorization.
Recent Earnings and Future Projections
Tesla has outperformed earnings predictions in the last four quarters, with an average earnings surprise of 7.94% during that period. In its most recent second-quarter earnings report in July, the company exceeded the consensus estimate by 9.64%, reporting earnings of $0.91 per share compared to the projected $0.83 per share.
The company achieved record-breaking production, deliveries, and revenues during the quarter, with Q2 sales rising by 47% year-over-year and vehicle deliveries increasing by 83%. Despite these solid results, Tesla’s operating margins declined to single digits in Q2, hitting 9.6%, the lowest in the past five quarters.
The cost escalation linked to the expansion of new battery cell production, the Cybertruck, and other major projects contributed to this decline. Analysts following Tesla have lowered earnings estimates for the current quarter by -5.95% in the last 30 days. The Zacks Consensus EPS Estimate for Q3 now stands at $0.79 per share, reflecting a negative growth of -24.76% compared to the same quarter last year.
Closing Remarks
Tesla enthusiasts are less concerned about current margin trends and are instead focused on the company’s potential to become a leader in artificial intelligence (AI). Tesla’s AI supercomputer, known as Dojo, is instrumental in bringing Full Self-Driving (FSD) vehicles to everyday driving scenarios. Recent enhancements in the software could pave the way for Tesla to introduce a global fleet of robotaxis. The market has rewarded TSLA shareholders over the long run.
The recent correction presents potential buyers with an appealing entry point. Tesla’s CEO, Elon Musk, has frequently faced skeptics, but his vision has largely proven them wrong. With AI initiatives taking center stage this year, there’s optimism that Tesla stock could see further upside.
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