Tesla (TSLA) Chief Executive Elon Musk has defied big odds and consistently beat expectations since taking the helm of the electric-vehicle manufacturer in 2008. Now, having set a record for quarterly deliveries of its all-electric vehicles, despite a global chip shortage, is Tesla stock a buy?
Tesla delivered 201,250 vehicles in the second quarter, up from the prior record of 184,800 in the first quarter. Deliveries soared 120% from the year-ago period.
Tesla stock dipped 3% despite the earnings announcement on July 2 but it has since regained that ground. The focus now shifts to Tesla’s second-quarter earnings report, which will likely come in late July.
The consensus looks for adjusted earnings of 95 cents a share, up 120% from the year-ago period, with revenue up 89% to $11.32 billion, according to FactSet.
China demand will also be a key area of interest. Tesla is dealing with consumer complaints and recalls, though it’s currently unclear how its affecting Tesla sales in China, which is a big part of Tesla’s growth story. It’s the driving force behind Tesla’s big sales gains over the past year.
Managing Through Global Chip Shortages
Following the deliveries report, Baird analyst Ben Kallo maintained his rating of outperform on TSLA stock, with a price target of 736. Tesla stock currently trades near 682.
Tesla’s second-quarter deliveries “demonstrated its continued, impressive ability to effectively manage around industrywide semiconductor shortages and shipping issues to achieve record deliveries,” Kallo wrote in a note to clients. “Furthermore, the company was able to achieve strong deliveries against both real and perceived issues in China in 2Q21.”
Tesla is reportedly taking unusual steps to get around a global chip shortage that has shuttered auto plants. The electric vehicle maker is ready to pay in advance for chips to ensure it has enough of the crucial material, sources told the Financial Times. Tesla is even considering buying a chip plant.
Meanwhile, China-based rivals Nio (NIO), Xpeng (XPEV) and Li Auto (LI) recently reported strong second-quarter deliveries.
Concerns About First-Quarter Results
Tesla reported first-quarter results on April 26 that beat Wall Street estimates but caused analysts to question how it was achieved. Revenue leapt 74% to $10.39 billion. That’s its best revenue growth in 10 quarters. Adjusted earnings of 93 cents a share topped estimates from Zacks Investment Research of 79 cents.
But analysts had concerns with the way its earnings beat was reached. During the quarter, Tesla received revenue from regulatory credits of $518 million, up 46% from the year-ago period. In addition, Tesla sold $272 million worth of cryptocurrency during the quarter, resulting in a recorded profit of $100 million. Tesla purchased $1.5 billion worth of bitcoin in early February.
“In other words, Tesla made $618 million in the first quarter from extraordinary items,” wrote Louis Navellier, chief investment officer at money management firm Navellier & Associates, in a note to clients. “In 2020, Tesla received $1.58 billion in electric vehicle tax credits, but only made $721 million, so the company actually did not make money building EVs!”
The company faced easy comparisons from the year-ago period as the coronavirus crisis first hit. It also helped that Tesla’s Shanghai plant had just started ramping up Model 3 production in the first quarter and began delivering the made-in-China Model Y for the first time.
Will Massive Expansion Bolster TSLA Stock
Tesla has undertaken a massive expansion of its manufacturing capabilities. Musk wants to eventually build 20 million electric vehicles a year over the next decade. That’s more than double the current production of other auto-making giants. So it’s now on a mission to rapidly expand its manufacturing capabilities.
The expansion includes construction of its third manufacturing plant near Berlin, where it will produce the Model Y.
Tesla will build its fourth manufacturing plant near Austin, Texas. That factory will be Tesla’s largest, built on a 2,000-acre chunk of land. It will produce the Cybertruck and its big-rig truck called Semi, as well as the Model Y and Model 3. Tesla recently said Cybertruck deliveries won’t begin until early 2022, later than official targets for a late 2021 launch.
List Of Tesla Competitors Growing
When Tesla starts pumping out cars in Germany, it will go head-to-head in electric vehicles with three established German names: Volkswagen Group (VWAGY), BMW (BMWYY) and the Mercedes-Benz division of Daimler AG (DDAIF). Other serious competitors include General Motors (GM) and Ford Motor (F), in addition to its China rivals
“The sad truth of the matter is the EV revolution is now being led by China and Europe where sales and government EV tax incentives are much stronger,” wrote Navellier. “For Tesla to get its mojo back, the company has to get ahead of the EV media cycle that is increasingly being dominated by its competitors announcing exciting new vehicles.”
According to the IBD Stock Checkup tool, Tesla stock has an IBD Composite Rating of 78 out of 99. The rating means Tesla stock currently outperforms 78% of all stocks. That’s in terms of the most important fundamental and technical stock-picking criteria.
The stock also has a Relative Strength Rating of 75. The rating tracks market leadership. It shows how a stock’s price movement over the past 52 weeks measures against that of other stocks.
Tesla Stock Down 32% From Record High
Since hitting an all-time high of 900.40 achieved intraday on Jan. 25, TSLA stock has lost about 32%.
Its Accumulation/Distribution Rating is B-. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A grade of A signals heavy institutional buying. The lowest rating of E means heavy selling. Think of the C grade as neutral.
The rating appears in IBD’s daily stock research tables, at Stock Checkup at Investors.com and in charts accompanying the IBD 50 and Big Cap 20.
Among other Tesla data points, its relative strength line has been trending sideways, reflecting the EV giant’s laggard performance vs. the S&P 500 after a stellar 2020. The RS measures a stock’s strength against all stocks in the S&P 500. The RS line is the blue line in the chart shown. Typically, the RS line of the strongest stocks is either confirming or leading a stock’s price into new high ground.
In the stock market, timing is critical. So when you’re looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.
Tesla Stock Forecast
Tesla stock is currently not a buy, although it is finding support at its 10-week moving average as it shapes a new base. Also, the stock recently moved above its 50-day moving average, the red line on the chart above. The EV giant is holding above support at its key 50- and 200-day moving averages. A strong show of support at these levels would be bullish for the stock’s prospects.
If you’re interested in buying large-cap stocks, in these articles you’ll find technical analysis of leading large caps to see if they are in or near a proper buy zone.
You’ll also find alerts to warning signs and sell signals that show when to take your profits or cut short any losses. You’ll also discover if the current stock market trend is conducive to buying stocks, or if it’s an environment where you want to take defensive action and sell.
Before making any investment decisions, be sure to check current market conditions and use IBD Stock Checkup to see if your stock gets passing ratings for the most important fundamental and technical criteria.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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