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Tesla ETFs: Time to Buy or Hold Post Lackluster Q2 Earnings?
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Tesla (TSLA - Free Report) shares gained 5.6% on Monday after Morgan Stanley named the most valuable automaker its "top pick" in the U.S. automotive industry, replacing Ford (F - Free Report) , as quoted on Reuters.
The Tesla stock has moved down 8.4% past week due to a lack of details from CEO Elon Musk on the company's self-driving vehicle efforts when it reported second-quarter 2024 earnings. The electric vehicle (EV) giant’ssecond-quarter results also missed the Zacks Consensus Estimate.
TSLA even became one of the worst-performing stocks of the S&P 500 in the initial phase of this year. However, luck is turning in Tesla’s favor. Over the past month, Tesla has gained 10.6%.
The brokerage house Morgan Stanley said that Tesla's energy business could grow to be worth more than the company's auto business in the future due to the rising importance of climate concerns.
How Will Tesla’s Energy Business Help?
Morgan Stanley expects Tesla to take a more dominant position in the market for zero-emission vehicle credit revenues, for which it recognized around $2,000 per unit in the second quarter, as legacy automakers are somewhat backing off on or slowing their EV expansion plans.
"We estimate Tesla may account for as much as half the credit sales in the market, supporting a 100% margin business for Tesla that may not be anticipated by the investment community at this time," Morgan Stanley analysts revealed, as quoted on Reuters.
Tesla’s Foray Into AI Regime: Will It Be Successful?
TSLA has been reforming itself from a car company to a technology and robotics company, mainly driven by artificial intelligence (AI) and autonomous driving technology. The company is betting big on driverless software and artificial intelligence in an attempt to revive sales.
However, Morgan Stanley raised concerns over Tesla's ability to commercialize autonomous driving technology in China and the future of EV demand. The company may again come under regulatory scrutiny over safety concerns.
Tesla is slated to introduce “robotaxis” — a driverless car without a steering wheel or pedals — in October 2024. The launch has been delayed. The next-generation vehicle was once widely thought to be the key to the electric automaker’s survival, especially as competition heats up in the EV space. But now, the sure-shot success of the launch has triggered concerns.
In late April, Tesla CEO Elon Musk announced that the company would spend about $10 billion this year on training and inference AI. Tesla's emphasis on AI and autonomous driving is seen as potentially transformative amid the current AI buzz. But again, we are yet to see any proper direction.
Is Tesla Awaiting Improved Profit Margins?
Many analysts predict improved profit margins for Tesla in the days ahead, thanks to lower production and raw material costs. The company is likely to record a 36.52% growth next year versus 26.90% expected growth for the Automotive – Domestic industry and a 9.31% growth anticipated for the S&P 500. Over the next five years, Tesla’s growth rate is expected to be 21.60% versus the underlying industry’s growth rate of 16.40%.
EV Space Gaining Gradual Momentum, Albeit Very Slowly
Electric car sales were robust in the first quarter of 2024, having grown 25% year over year. Since 2021, first-quarter electric car sales have typically made up 15-20% of the total global annual sales, per International Energy Agency or IEA.
The major share of first-quarter 2024 sales growth came from China. IEA forecasts 2024 EV sales to log a year-over-year increase of 20%. EVs are likely to command more than one-fifth share of the total car sales.
Wall of Worry
Cybertruck, Tesla’s first new consumer model in years, has been slow to gain momentum. The success of driverless cars is yet to be known. Margins on the EV business are still lackluster. Analysts are also not overly optimistic about Tesla, as two out of 12 analysts raised TSLA’s earnings estimates for 2024 over the past seven days, while eight analysts cut the same.
Image Source: Zacks Investment Research
Agreed, Tesla more than doubled its ‘all-time-high’ quarterly deployment numbers for energy storage in the second quarter of 2024. Then again, energy generation and storage revenues make up less than 10% of the total revenues. Even if the gross profit of this segment grows more than 100%, the contribution is less likely to be meaningful at the current level.
Broker Rating
Tesla currently has an average brokerage recommendation (ABR) of 3.09 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 35 brokerage firms. The current ABR compares to an ABR of 2.91 a month ago based on 35 recommendations. Tesla has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
ETFs in Focus
Investors seeking to tap the short-term uptrend in Tesla (due to Morgan Stanley’s bullish comments) may buy ETFs having a substantial allocation to this luxury carmaker as the ETF approach minimizes company-specific concentration risks. Otherwise, it is better to wait for more solid cues related to margin improvement and success related to self-driving cars before betting big on Tesla.
The ETFs include Direxion Daily TSLA Bull 1.5X Shares (TSLL) , MeetKevin Pricing Power ETF (PP) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Simplify Volt Robocar Disruption and Tech ETF (VCAR) and ARK Innovation ETF (ARKK - Free Report) .
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Tesla ETFs: Time to Buy or Hold Post Lackluster Q2 Earnings?
Tesla (TSLA - Free Report) shares gained 5.6% on Monday after Morgan Stanley named the most valuable automaker its "top pick" in the U.S. automotive industry, replacing Ford (F - Free Report) , as quoted on Reuters.
The Tesla stock has moved down 8.4% past week due to a lack of details from CEO Elon Musk on the company's self-driving vehicle efforts when it reported second-quarter 2024 earnings. The electric vehicle (EV) giant’ssecond-quarter results also missed the Zacks Consensus Estimate.
TSLA even became one of the worst-performing stocks of the S&P 500 in the initial phase of this year. However, luck is turning in Tesla’s favor. Over the past month, Tesla has gained 10.6%.
The brokerage house Morgan Stanley said that Tesla's energy business could grow to be worth more than the company's auto business in the future due to the rising importance of climate concerns.
How Will Tesla’s Energy Business Help?
Morgan Stanley expects Tesla to take a more dominant position in the market for zero-emission vehicle credit revenues, for which it recognized around $2,000 per unit in the second quarter, as legacy automakers are somewhat backing off on or slowing their EV expansion plans.
"We estimate Tesla may account for as much as half the credit sales in the market, supporting a 100% margin business for Tesla that may not be anticipated by the investment community at this time," Morgan Stanley analysts revealed, as quoted on Reuters.
Tesla’s Foray Into AI Regime: Will It Be Successful?
TSLA has been reforming itself from a car company to a technology and robotics company, mainly driven by artificial intelligence (AI) and autonomous driving technology. The company is betting big on driverless software and artificial intelligence in an attempt to revive sales.
However, Morgan Stanley raised concerns over Tesla's ability to commercialize autonomous driving technology in China and the future of EV demand. The company may again come under regulatory scrutiny over safety concerns.
Tesla is slated to introduce “robotaxis” — a driverless car without a steering wheel or pedals — in October 2024. The launch has been delayed. The next-generation vehicle was once widely thought to be the key to the electric automaker’s survival, especially as competition heats up in the EV space. But now, the sure-shot success of the launch has triggered concerns.
In late April, Tesla CEO Elon Musk announced that the company would spend about $10 billion this year on training and inference AI. Tesla's emphasis on AI and autonomous driving is seen as potentially transformative amid the current AI buzz. But again, we are yet to see any proper direction.
Is Tesla Awaiting Improved Profit Margins?
Many analysts predict improved profit margins for Tesla in the days ahead, thanks to lower production and raw material costs. The company is likely to record a 36.52% growth next year versus 26.90% expected growth for the Automotive – Domestic industry and a 9.31% growth anticipated for the S&P 500. Over the next five years, Tesla’s growth rate is expected to be 21.60% versus the underlying industry’s growth rate of 16.40%.
EV Space Gaining Gradual Momentum, Albeit Very Slowly
Electric car sales were robust in the first quarter of 2024, having grown 25% year over year. Since 2021, first-quarter electric car sales have typically made up 15-20% of the total global annual sales, per International Energy Agency or IEA.
The major share of first-quarter 2024 sales growth came from China. IEA forecasts 2024 EV sales to log a year-over-year increase of 20%. EVs are likely to command more than one-fifth share of the total car sales.
Wall of Worry
Cybertruck, Tesla’s first new consumer model in years, has been slow to gain momentum. The success of driverless cars is yet to be known. Margins on the EV business are still lackluster. Analysts are also not overly optimistic about Tesla, as two out of 12 analysts raised TSLA’s earnings estimates for 2024 over the past seven days, while eight analysts cut the same.
Image Source: Zacks Investment Research
Agreed, Tesla more than doubled its ‘all-time-high’ quarterly deployment numbers for energy storage in the second quarter of 2024. Then again, energy generation and storage revenues make up less than 10% of the total revenues. Even if the gross profit of this segment grows more than 100%, the contribution is less likely to be meaningful at the current level.
Broker Rating
Tesla currently has an average brokerage recommendation (ABR) of 3.09 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 35 brokerage firms. The current ABR compares to an ABR of 2.91 a month ago based on 35 recommendations. Tesla has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
ETFs in Focus
Investors seeking to tap the short-term uptrend in Tesla (due to Morgan Stanley’s bullish comments) may buy ETFs having a substantial allocation to this luxury carmaker as the ETF approach minimizes company-specific concentration risks. Otherwise, it is better to wait for more solid cues related to margin improvement and success related to self-driving cars before betting big on Tesla.
The ETFs include Direxion Daily TSLA Bull 1.5X Shares (TSLL) , MeetKevin Pricing Power ETF (PP) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Simplify Volt Robocar Disruption and Tech ETF (VCAR) and ARK Innovation ETF (ARKK - Free Report) .