Tesla’s portfolio of models is growing.
NICOLAS ASFOURI/AFP via Getty Images
Stock in the electric- vehicle pioneer Tesla isn’t dead money any more. At least, not this week.
Tesla (ticker: TSLA) reports earnings after the market closes on Monday, July 26. If history is a guide, that means the stock will post some nice gains over the coming five trading sessions. Tesla stock tends to outperform in the week before earnings as investors get excited about what they are about to hear.
Over the past three years, Tesla stock has risen in the week before earnings in eight of the 12 quarters reported. The average gain is about 1.6%. The stock has beaten the change in the S&P 500 in eight of the 12 quarters in the week before reporting earnings as well. The average outperformance between Tesla stock and the S&P is 1.7 percentage points for that final week.
Why the stock outperforms is up for debate. But Tesla has been increasing its deliveries for six consecutive quarters, and more cars lead to better earnings. Tesla reports its deliveries before its financial results, giving investors a reason for excitement as earnings approach.
This time around, estimates for second-quarter profits have risen from roughly 95 cents a share to about 96 cents after the company delivered more than 200,000 vehicles in a quarter for the first time. That change is tiny, but analysts following Tesla tend not to adjust their earnings calls in the relatively brief time between the release of the delivery numbers and actual financial results. The penny bump in earnings estimates doesn’t really reflect the strong delivery number posted by the company.
Tesla investors would probably react to a decent week for the stock with a sigh of relief. Tesla stock has been going nowhere, and Barron’s wrote in May, when the price was at about $672, that Tesla stock was dead money for a while. The shares closed this past week at about $649, down roughly 3.5%. The S&P 500, for comparison, has risen about 3.3% over the same span.
A big problem for bulls back in May was that Tesla stock had had an incredible run and was due for a breather. Shares rose about 330% between early May 2020 and early May this year.
Looking ahead, Tesla bulls still expect more from the stock, driven by new autonomous-driving features and production from new plants in Texas and Berlin. But those positive factors are expected to offer a lift around the end of the year.
During the second-quarter earnings conference call, investors will be looking for updates on those catalysts. They will also want to hear about competition in China, as well as market share in China and Europe. The Chinese EV maker XPeng (XPEV), for instance, just announced pricing for its new P5 sedan. In its base configuration, a P5 will be cheaper than a Chinese-built Tesla Model 3.
Investors will also want to hear about the company’s coming model. the Cybertruck, being made in a new plant in Austin, Texas. CEO Elon Musk said last week that the vehicle could be a flop because it is so different, but the truck has garnered hundreds of thousands of reservations for purchase. The initial Cybertruck delivery results should impress; shipments to customers are due to start around year-end.
Overall, Tesla’s vehicle lineup is expanding. The company now has two sedans and two SUV-type vehicles. A pickup truck, a two-seat roadster, and a semi truck are on the way.
Along with vehicles, Musk says a more advanced version of the company’s autonomous-driving software is ready. That is another thing Tesla bulls have been waiting for.
The new software doesn’t make cars fully self-driving. Drivers will still need to watch the road, but Musk has boasted that the improvements are substantial. Better software could drive Tesla owners to purchase the feature on a subscription basis for about $10,000. Expectations for increasing sales of software with high profits are another thing that could drive Tesla stock upward.
Things were off to a rocky start on Monday morning as concerns about Covid-19 drove markets lower. Tesla stock was down about 2.4%, while both the S&P and Nasdaq Composite were about 1.2% weaker .
Still, Tesla remains the most valuable car company on the planet. So far in 2021, shares are down about 11%, trailing behind the 14% and 12% respective gains of the S&P and Dow Jones Industrial Average over that span.
