Tesla Inc. shares have soared over the past 30 days, but it’s becoming increasingly difficult to agree with the optimists.
The last time there was a run like this, the rally was supported by double-digit earnings growth. Things are looking a lot gloomier now: the mood around electric cars is subdued, Tesla’s sales are falling and profits are shrinking.
Tesla is up 47% through Friday from its price a month ago, even after suffering an 8% drop on Thursday when Bloomberg reported that Elon Musks The announced unveiling of a Tesla robotaxi fleet would not take place on August 8 as promised.
Investors say the surge is due to traders looking past Tesla’s EV credentials and betting that Elon Musk can transform it into an artificial intelligence powerhouse. The idea is that when Musk finally unveils Tesla’s long-awaited self-driving technology — the so-called robotaxi — it will cement the company’s position as a leading AI player. But the unveiling has now been delayed until at least October, some company insiders said, following a long-standing pattern of Tesla missing deadlines it sets for itself.
“Investors were looking for that one breakthrough, a real application of AI,” said Nicholas Colas, co-founder of DataTrek Research. “And now we have someone who has been working on AI for years saying, ‘Hey, I have this killer application.’”
Still, there are numbers that run counter to the current hype surrounding the stock: earnings are expected to fall 21% in 2024, while revenue growth will slow to just 2.2%.
“This is clearly a belief-based stock now, not a stock whose valuations are in any way tied to current earnings power. And every day the stock goes up, the bar for the event gets higher,” Colas added.
The frenetic rally, which last week prompted bond billionaire Bill Gross to compare Tesla to meme stocks, gathered steam after the company’s July 2 sales update suggested the worst of the EV slowdown might be over. But the surge has since gained wilder momentum.
Tesla is now the fifth most expensive stock in the S&P 500 Index based on price-to-earnings ratio, easily outpacing the rest of the mega-cap tech cohort. Shares surged again on Thursday, which, if sustained through the rest of the day, will mark 12 consecutive sessions of gains.
One risk is that Tesla’s ultimate success in AI will depend on solving one of the most complex problems the technology has yet tackled: creating cars that drive themselves more safely than humans. Analysts and experts generally say that mass adoption of such technology in the real world is likely to be decades away.
Tesla has “always traded on hopes and dreams,” said Steve Sosnick, chief strategist at Interactive Brokers. “If you don’t think about the future, the fact that this company is worth almost as much as the rest of the auto industry combined is nonsense. But if you think Elon Musk and Tesla are going to change the world, who cares if you pay 100 times earnings?”
Even with its dizzying price-to-earnings ratio, the stock’s roughly $250 price is still a long way from the peak of around $410 it hit in November 2021. That’s because Tesla’s stock is staging a dramatic turnaround, but its profits are shrinking. In 2021, when shares rose 50%, annual earnings rose nearly seven times.
All of this doesn’t make it any easier to predict whether the rally is about to break. trade in The options market shows that investors remain optimistic.
“The Tesla options market positioning has become extremely bullish for the next three months,” said Vishal Vivek, an equity strategist at Citigroup. Options imply that traders are positioning for a move of more than 9% in either direction when the company reports second-quarter results on July 23, the strategist added.
Traders are bidding up the price of Tesla call options versus put options, suggesting increased appetite for the rally to continue, coupled with less demand for hedging in the event the stock price falls.
Yet not everyone is brave enough to make matters worse.
For David Wagner, portfolio manager at Aptus Capital Advisors, which holds the company’s shares, the uncertainty over what Musk will present on August 8 is reason enough to consider the risk “too high to put new money into Tesla at this time.”
The overwhelming buying wave is also causing some concern among other market participants, who fear that the tide will turn.
“The biggest risk for Tesla stock is this level of volatility,” said Michael O’Rourke, chief market strategist at Jonestrading. “Usually this type of volatility goes both ways, so that’s a problem.”