(Bloomberg) – Elon Musk is known for challenging the status quo — and that’s exactly what Tesla Inc (TSLA34) investors are worried about.
The company’s shares are facing their longest decline since the end of 2022, falling almost 19% in the last seven days until yesterday’s session, amid doubts about its business strategy as sales of electric vehicles fall .
- Receive the main economic, investment and business news on your cell phone! Subscribe to the InfoMoney WhatsApp channel now.
The last concern? That Elon Musk, the CEO of Tesla, will announce plans in the earnings call this Tuesday (23) to block the launch of a cheaper model and focus on developing a fully autonomous vehicle – a project that would face regulatory and commercial obstacles considerable.
Free Ebook
How to analyze stocks
Sign up and receive an ebook that explains what every investor needs to know to carry out their own analysis
That would mark a major departure from what analysts were expecting and leave the company without any near-term growth catalyst, just when it is expected to report the first quarterly drop in sales since the pandemic hit in 2020.
“Until several weeks ago, the main focal point in the first quarter result was the fundamentals of Tesla’s vehicle sales, with the company facing an extremely challenging new setup amid sharp delivery disappointment, risk of no volume growth in 2024 and additional pressure on margins,” said Dan Levy, an analyst at Barclays Plc, who has the equivalent of a neutral rating on the stock.
Levy said these issues took a backseat to a larger issue: “A pivot to the investment thesis.”
Those concerns have sent shares down nearly 43% this year to a 15-month low of $142.05. It’s the second-worst performer in the S&P 500, behind only Globe Life Inc., an insurer targeted by short sellers.
The drop has raised the risk that any disappointment in Tuesday’s earnings report or Musk’s conference call could snowball, according to technical analysts who analyze stock price movements to predict their future trajectory. For them, the drop below $150 has already surpassed an important support level.
“Stocks are now in no man’s land, with a huge pocket of air between current value and under $100,” said Todd Sohn, ETF and technical strategist at Strategas Securities.
Musk has already said that the company will present its so-called Robotaxi in August, but has not clarified plans for the cheaper vehicle. It’s possible that Tesla will just delay production of the cheaper car rather than shelving it completely.
But concerns about Tesla’s strategy have exacerbated investor jitters at a time when the company is already facing slowing growth, reduced margins and sales. First-quarter vehicle deliveries, announced earlier this month, lagged analyst forecasts by at least seven years.
Over the past 12 months, expectations for first-quarter earnings have been cut to 52 cents per share, half of what was predicted. Forecast revenue — now about $22.3 billion — has been cut by 22% over that period, according to data compiled by Bloomberg, while estimated free cash flow has fallen 70% to about $ 654 million.
That’s why Tesla’s share price still looks elevated in some respects despite the recent drop: At nearly 47 times forward earnings, it’s significantly more expensive than any other member of the so-called “Magnificent Seven” tech stocks.
On the other hand, negative sentiment has established a relatively low level, creating the potential for a recovery.
“The news flow and psychology surrounding Tesla has become so negative that a modest loss may already be priced in,” said Steve Sosnick, chief strategist at Interactive Brokers LLC.
But this is not usually the case. Tesla shares fell at least 9% the day after its last four quarterly results, and options trading implies expectations of an 8% move in either direction after Tuesday’s numbers.
Demand for short-term puts has jumped to its highest premium to equivalent calls since November. That said, this signals that investors are paying more for protection in case stocks fall, as opposed to options positioning for gains.
“Earnings are crucial,” Sosnick said. “If we have a deep disappointment, then $100 will be the next likely stop.”
© 2024 Bloomberg L.P.
