You read that right, Tesla (TSLA) shares are priced for perfection ahead of their earnings.
Historically, that’s not a good thing for most stocks, but it could work for Tesla tomorrow, under one condition.
Here’s the situation.
Tesla is going to kick off the real earnings season. Sure, the banks have had their time in the spotlight, but what everyone really wants to see if the large cap technology earnings.
They start Tuesday with Tesla, then Microsoft and Alphabet later in the week.
Looking at Tesla, investor’s Expectations are sky high ahead of the company’s earnings report tomorrow afternoon.
Tesla shares have rallied an incredible 82% since the company’s last earnings report on April 23. The move has been based on investor’s belief that the EV manufacturer has turned a corner. But have they?
Last quarter, Tesla reported earnings that missed analyst’s already lowered expectations. The company also missed their revenue target by more than 5%.
The reason for the miss is simple.
The EV market has become more competitive with offers from new companies in the space while consumers appear to be backing off on their demand for electric vehicles.
Tesla did post stronger than expected deliveries for the second quarter just weeks ago.
The stock jumped 28% in a little over a week after the company reported their latest deliveries on July 2.
443,956 vehicles were delivered, better than what analysts had expected, but still 4% lower than what the company had put in owner’s driveways a year ago. So, the company is still struggling.
Now, Tesla is sitting near its highest prices since the beginning of the year, begging for confirmation that the recent “expectations” trade will pay off for the speculators.
There is a fundamental risk that has come into play over the last week.
Turmoil in the Presidential Election may prove dangerous for Tesla and other EV manufacturers.
Last week, Former President Donald Trump vowed to end the mandate on electric vehicle on his first day in office.
Technically, there is no mandate on auto manufacturers, but the Clean Car emissions standard for automobiles that is set to be phased in from 2027 through 2032 have been seen as forcing the industry and consumers to adopt electric vehicles, thus helping the EV industry.
Removal of those standards would put immediate pressure on Tesla, Rivian (RIVN) and other automobile manufacturers.
General Motors and Ford have already drawn their plans to advance back into the hybrid automobile space as these vehicles could offer lower emissions at a lower price point for consumers.
Clearly there is pressure on Tesla’s core business model as we head into the earnings report.
Here’s the one condition that could drive Tesla another 50% higher.
Elon Musk originally teased the plan to reveal the company’s Robotaxi platform on August 8. A little more than a week ago, the reveal date was pushed back to October.
The last two months of fundamental challenges for the automaker have meant nothing to investors that have been jumping back into the stock as a speculative play on the company’s Robotaxi future.
An update on the Robotaxi product will be the tipping point between the stock continuing its rally or falling 20% to technical support.
Here’s how I approach the stock ahead of Tuesday’s earnings.
As I mentioned, the stock is priced for perfection after rallying 80% since last quarter’s earnings.
Much of the market expects Tesla’s EV business to have note changed much in the last quarter.
Consumers are still concerned about high interest rates and the future of the economy, which should result in another quarter of flat results for EV sales and revenue.
This means that the Robotaxi platform is the catalyst, plain and simple.
A lack of development and firm dates on this line item will trigger a run on profit-taking as traders look at the recent 80% rally as a gift.
In that case, the stock turns into a potential buy at $205, which is where its 200-day moving average is sitting ready to provide support.
That $205 is also the spot where Tesla shares’ 20-month moving average sits. The 20-month moving average is the technical line of demarcation between a long-term bull and bear market trend.
Expect that the stock will find additional support because of that long-term trendline as algorithms will buy that technical strength.
Investors that do not have a position in Tesla should consider waiting until after the earnings report on Tuesday before adding the stock to their portfolio.
Historically, Tesla shares lose an average of 7% within the first two weeks after an earnings report, whether the results are better or worse than expectations.