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IF Insights: Why are Tesla shares being volatile despite record sales?

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Tesla’s full-year 2022 earnings surged 80% to USD 4.07 per share

With billionaire Elon Musk, CEO of Tesla (TSLA), there is never a dull moment. His actions frequently prompt the query: Should I buy or sell TSLA stock right now?

Following the company’s announcement in April this year about lowering the prices of its electric vehicles, Tesla stock dropped as much as 5%. However, it has rebounded and gone back to the green zone again, but expect the volatility to remain in the upcoming days too.

The automaker has lowered the cost of the Model S and Model X automobiles by USD 5,000. Moreover, Tesla’s Model 3 sedan will now cost USD 1,000 less, while its Model Y will have a price tag with a USD 2,000 discount. All these have been done to spur up market demand amid an economic slowdown.

The price reductions may negatively impact Tesla’s profit margins. Still, analysts like Alexander Potter of Piper Sandler claim that they are just one aspect of a larger strategy to gain market share and hasten the demise of gas-powered vehicles.

Others are using it to back their predictions that the current price of Tesla stock makes it unattractive to invest in.

Tesla Has Had A Mammoth Stock

Almost single-handedly, Elon Musk has disrupted the auto industry, forcing it to get aboard the electric vehicle bandwagon.

Tesla has always possessed a monster stock since its inception, especially during its sky-high run from mid-2019 to late 2021. The EVA stock hit a bear market low of 101.84 on January 6, 2023. After that, it roared back but slid once again.

The company reported mixed fourth-quarter results on January 25, 2023, topping earnings estimates but missing revenue estimates. Still, the stock increased as Elon Musk was bullish about 2023 and promised to produce 2 million cars this year.

Tesla’s full-year 2022 earnings surged 80% to USD 4.07 per share. But that’s down from 202% growth in 2021. As a result, analysts think payments in 2023 will be flat at USD 4.05 a share.

Sales in 2022 jumped 51% to USD 81.5 billion. That’s down from a 71% gain in 2021. Analysts expect 2023 sales growth to be at 27%.

Is Elon Musk’s Erratic Behaviour Harming Tesla?

Elon Musk’s Twitter takeover was a much-publicized and convoluted event. The Tesla CEO bragged that he will make Twitter profitable after the acquisition. Yet, after his takeover, the USD 44 billion company is now valued at around USD 20 billion.

The fact that advertisers have shrunk back is one of the leading causes for Twitter’s value to have fallen in half. According to reports, more than half of the top 1,000 advertisers on Twitter in September 2022 reportedly ceased using the service in the first few weeks of January 2023.

According to a CNN article, almost 625 of the top 1,000 Twitter advertisers, including well-known companies like Coca-Cola, Unilever, Jeep, Wells Fargo, and Merck, had stopped using the platform in January 2023. Elon Musk is trying to restore Twitter and attract advertisers to the network. He also praised sponsors for returning to the site in 2022 December. This was a time when Apple almost ceased running ads on Twitter, likewise with Amazon.

Even though some advertisers are returning, more than half have removed their ads from the platform. So Elon Musk let go of more than half of the workers to compensate for the loss.

Previously, the billionaire broke the record for the most significant loss of personal wealth in history. According to a blog post on Guinness World Records, he lost over USD 165 billion between November 2021 and December 2022.

Guinness noted that although the statistics were based on data from publisher Forbes, other sources suggested that Elon Musk’s losses might have been larger, especially after Tesla’s stock value dropped after the billionaire acquired Twitter in 2022.

Investors are worried that Elon Musk is no longer giving Tesla enough attention after acquiring Twitter.

The sum lost by Elon Musk since November 2021 surpassed the previous record set by Masayoshi Son, a Japanese tech investor, who lost USD 58.6 billion (£47 billion) in 2000.

The anticipated loss is based on the value of his shares, which might increase in value again, increasing Elon Musk’s wealth.

The CEO of French luxury goods business LVMH, which owns the fashion label Louis Vuitton, Bernard Arnault, replaced the Tesla CEO as the wealthiest man in the world in December 2022.

Bullish Or Bearish?

Tesla reported first-quarter deliveries that hit a record, but fell short of estimates again. Analysts now expect Tesla to face pricing pressure in the second quarter of 2023.

Tesla still needs delivery estimates for several quarters. Deliveries jumped 36% in the fourth quarter from the year-ago period to 422,875. That was 4% above the prior record of 405,278 set in the fourth quarter. However, analysts were expecting about 431,000 Tesla deliveries.

On January 3, the day after it missed fourth-quarter delivery estimates, Tesla shares sank more than 12%. That day remains the worst for Tesla stock in 2023. Tesla stock bottomed on January 6, as the company announced significant price cuts. Tesla followed up with price cuts in Europe and the US on January 13.

With first-quarter deliveries completed, the next question is how the price cuts affected Tesla’s earnings and gross margins. Tesla is expected to report first-quarter results on April 19.

According to MarketSmith research, Tesla stock increased 6.2% on March 31 to reach 207.46, surpassing a 200.76 cup-with-handle buy point. Shares, however, are near their 200-day moving average, which could act as resistance.

The price of TSLA remains higher than its 50-day moving average. If it succeeds in breaking through its 200-day line, a purchase point of 217.75 will become available.

The IBD Stock Checkup tool gives Tesla an 89 out of 99 Composite Rating. Focus on growth stocks with a Composite Rating of 90 or above when selecting growth stocks with the most significant potential returns based on technical and fundamental investing factors. At 79, Tesla’s Relative Strength Rating is lower.

In IBD’s industry group for automakers, TSLA stock comes in third. Stellantis (STLA) is in the top place, followed by Ferrari (RACE).

The highest EPS rating for Tesla is a good 99 points. Elon Musk’s unpredictability has most people on edge. However, investors won’t dump those Tesla shares just yet.

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