Tesla, Inc. (NASDAQ:TSLA) shares have fallen about 12% since the electric vehicle maker reported its second-quarter results. “The stock weakness reflected investors’ concern regarding further margin erosion due to potential price cuts,” said Future Fund’s Gary Black. CEO Elon Musk left open the possibility of further price cuts on the second-quarter earnings call, blaming it on a rising rate environment.
“The price cuts are unlikely to be supported by a decline in the cost of goods sold. Thursday’s weakness can partly be blamed on a report that said the company overstated EV range and the regulatory risks surrounding its full-self driving software, the spike in the 10-year Treasury yield by 13 basis points to 4% on Thursday on the back of better-than-expected second-quarter GDP data did not help matters any further. Rising rates hurt long-duration growth stocks mos,” said the fund manager.
Reporting on Benzinga, Tesla analyst Kallo calls the second quarter a beat and maintains Tesla as a “Best Pick” for the second half of 2023. The analyst notes the caution from the company and its margins remain a concern. “Management reiterated its cautions tone regarding the macroeconomic backdrop for 2H, but we are encouraged by Teslas’ cost improvements and continue to believe that it is well positioned,” said Kallo.
Kallo estimates that 75,000 Cybertrucks will be delivered in 2024. The analyst expects the stock to trade down based on lower volume production and the announcement of FSD transferability in the third quarter. “(We) would use any pullback to accumulate shares.” RBC Capital on Tesla: Narayan said Tesla’s gross margins came in above estimates, despite a focus on lower prices from the company. “EBIT margins did come in below, but we suspect this came from higher R&D expense which is likely tied to autonomy ambitions. We also remind investors that Tesla is posting double-digit EBIT margins and selling 100% EVs,” said Narayan according to Benzinga reports.
The analyst said Tesla remains on track to hit 1.8 million deliveries for the fiscal year, a figure it can hit if it maintains its second quarter run rate. “We suspect this could be viewed negatively by some investors.” said the analyst.
The comments by Tesla CEO Elon Musk that the company is in discussions with a major OEM to license FSD is important. “We believe FSD licensing could be a significant part of Tesla’s long term investment thesis and expect this to come with lower pricing which should result in higher attach rate.” said Narayan.
Tesla was working to print a bearish kicker candlestick on Thursday, which suggests lower prices could come again on Friday. If Tesla continues to move lower on decreasing volume, the stock is likely to print a bullish reversal candlestick, such as a doji or hammer candlestick, over the next few days, which could signal a reversal to the upside.
- Tesla left a gap above between $280.93 and $289.52. Gaps on charts are about 90% likely to fill in the future and when Tesla rebounds to fill the gap, the stock may find at least temporary resistance at the top of the empty trading range.
- If Tesla finds support at $265.10 and bounces up from that area, the stock will form a triple bottom pattern, when paired with similar price action at that level on July 10 and July 11. If the stock falls under that area, Tesla’s uptrend will be negated and a downtrend could be in the works.
- Tesla has resistance above at $271.71 and $285.83 and support below at $265.10 and $254.98.
Black, however, is bullish on Tesla. Tesla is the second-biggest holding of Future Fund’s actively-managed Future Fund Active ETF (NYSE:FFND) exchange-traded fund.
The fund manager is very excited about Tesla’s upcoming Cybertruck. He listed the following as the key catalysts that could give the sagging stock a lift:
- Gross margin stabilizing in the third quarter.
- Model 3 refresh/Highland launch in the third quarter.
- Cybertruck deliveries beginning in the fourth quarter.
- Federal Reserve pivoting on interest rates.
- $7,500 EV instant rebate in 2024.
- Twitter turning cash flow positive in 2024.
- Initiation of a $10 billion buyback in 2024.
- FSD Alpha version 12 L4 release in 2024.
- Launch of a compact $25,000-$35,000 cars in 2025.
Black has six months to a one-year price target of $320 for Tesla stock. Tesla ended Thursday’s session down 3.27% at $255.71, according to Zenger News Pro data.
Produced in association with Benzinga
Edited by Eunice Anyango Oyule and Judy J. Rotich