Trading of Tesla, Inc. TSLA is undoubtedly always an adventure. The title remains very volatile, with a beta* of 2.11, which makes it twice as responsive as the market as a whole.
Tesla sits at the top of a booming electric vehicle (EV) industry and now faces increasing competition from emerging companies such as Rivian Automobile Inc. SHORE and The North Star PSNYWtraditional car manufacturers established as Ford Motor Co. F, General Motors Co. GM, Honda Motor Co. HMC and Toyota Motor Corp. MTas well as foreign rivals like NIO inc. NIO and Xpeng Inc. XPEV.
Tesla’s rise to the top of many top stock indexes, like the NASDAQ 100, has put it squarely in the targets of retail and institutional investors. It remains one of the most traded – and best-selling – stocks on U.S. exchanges, with significant options volume.
Elon Musk, Tesla’s eccentric CEO, remains capable of whipping retail investors into a frenzy with memes, antics and high-profile feuds such as his current lawsuit with Twitter Inc. TWTR on a possible acquisition.
Ultimately, for both bulls and bears, many trading opportunities could exist given the volatility of the stock and the attention it receives. The question is, what catalysts can Tesla traders expect for the rest of 2022? And how can they better trade around them?
Earnings catalysts to watch
Tesla’s trading volume and volatility tends to increase around its quarterly earnings reports, with the most recent being July 20 for the second quarter of 2022. Tesla is then expected to announce its third quarter earnings report between October 19 and 24.
As the earnings report date approaches, key numbers to watch and compare to consensus analyst estimates could include:
- The continued impacts of inflation and supply chain constraints on its automotive segment gross margins (its primary source of revenue) comparing year-over-year quarterly growth/contraction.
- Whether Tesla’s new Gigafactory in Austin, Texas will exceed management’s production estimate of 1,000 vehicles per week.
- The growth rate of its infrastructure — particularly potential increases in the number of stores, service centers and Supercharger locations.
- The disposal of his remaining 25% stake in Bitcoin BTC/USD after selling 75% at the end of the second quarter.
Tesla shareholders also approved a forward 3-for-1 stock split on Thursday, Aug. 4 based on a preliminary vote count. Earlier in 2020, shares surged in the weeks following the last time Tesla carried out a 5-for-1 stock split. Traders could benefit from increased volatility in the weeks ahead as investors buy stocks. Tesla shares ahead of the split date.
Macroeconomic factors to watch
As a growth stock, Tesla is likely to be affected by inflation and rising rates, which could lower its valuation and increase the cost of borrowing capital. Key dates to watch ahead of Tesla’s October earnings report include:
- The Consumer Price Index (CPI)* figures for August and September will be released on September 13 and October 13 respectively1.
- The Federal Open Market Committee (FOMC) meets September 20-21. Chairman Jerome Powell has raised the possibility of a third straight 75 basis point rate hike, with a target federal funds rate of 3.25% to 3.5% by the end of the year2.
Earlier in July, Musk lamented the effects of prolonged high inflation on Tesla’s spending and selling prices, noting that the two new factories in Austin, Texas and Brandenburg, Germany were “of gigantic silver furnaces”.
High prices for raw materials and, in particular, semiconductors, were cited as a major impact on Tesla’s squeezed margins. Traders can therefore keep an eye on the producer price index by industry, with manufacturing of semiconductors and other electronic components being a potential leading indicator for Tesla3’s outlook.
Trading Tesla with Direxion ETFs
Traders looking for amplified exposure to Tesla can use Direxion’s Daily TSLA Bull 1.5X (TSLL) stock and Daily TSLA Bear 1X (TSLS) stock suite instead of margin or options .
TSLL seeks daily investment results, before fees and expenses, of 150% of TSLA’s performance for a single day, and TSLS seeks daily investment results, before fees and expenses, of 100% of the inverse of TSLA’s performance for a single day. It is important to note that funds should not invest directly in TSLA. Traders with a bullish outlook can buy TSLL to stay long if they think TSLA will rise. Conversely, traders with a bearish outlook can buy TSLS to go short if they think TSLA will break down.
A strategy that uses TSLL or TSLS to trade around the next earnings report or economic releases from TSLA could be a way to speculate on higher prices or hedge against a downturn. As with all leveraged ETFs, TSLL and TSLS can be a powerful way to gain short-term exposure, but only if traders do their due diligence on TSLA’s short-term outlook, have a thesis of solid investment and have a high tolerance for risk.
– Beta describes how the expected return of a stock or portfolio correlates with the return of the financial market as a whole. A beta above 1.00 indicates the portfolio is more volatile than the market, and a beta below 1.00 indicates the portfolio is less volatile than the market.
– The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating benefits of diversification.
Leveraged and inverse ETFs pursue leveraged daily investment objectives, which means they are riskier than alternatives that do not use leverage. They aim for daily targets and should not track the performance of the underlying stock over periods longer than one day. They are not suitable for all investors and should only be used by investors who understand the risk of leverage and actively manage their investments. The Funds will lose money if the performance of the underlying stock is stable, and it is possible that the Funds will lose money even if the performance of the underlying stock increases over a period longer than a single day.
An investor should carefully consider the investment objective, risks, charges and expenses of a Sub-Fund before investing. A Sub-Fund’s prospectus and simplified prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus, call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and simplified prospectus should be read carefully before investing.
TSLA Trading Risk – The trading price of TSLA has been highly volatile and may continue to fluctuate widely in response to various factors. The stock market in general, and the market for technology companies in particular, have experienced extreme fluctuations in price and volume that have often been unrelated or disproportionate to the operational performance of these companies.
Tesla Risk: The future growth and success of Tesla, Inc. depends on consumer demand for electric vehicles, and more specifically, its vehicles in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles generally and for Tesla, Inc.’s vehicles does not develop as Tesla, Inc. expects, develops more slowly than expected, or if demand for its vehicles declines in our markets or if our vehicles compete, the business, prospects, financial condition and results of operations of Tesla, Inc. could be adversely affected. Tesla, Inc. may not meet its publicly announced guidelines or other business expectations, which could result in a significant decline in the price of TSLA.
Directionxion shares the risks – An investment in each Sub-Fund involves risks, including the possible loss of principal. Each Fund is not diversified and involves risks associated with the fact that a Fund concentrates its investments in a particular security, industry, sector or geographic region, which may result in increased volatility. The use of derivatives such as futures and swaps is subject to market risks which may cause their price to fluctuate over time. The risks of the Funds include the effects of market capitalization and volatility risk, leverage risk, derivatives risk, counterparty risk, rebalancing risk, intraday investment risk, correlation/daily tracking risk, Tesla, Inc. investment risk, single security risk, market risk, indirect investment risk, trading stoppage risk and risks specific to the consumer discretionary sector, electric and autonomous vehicle companies and car manufacturers. Additional risks include, for Direxion Daily TSLA Bear 1X shares, short and cash trading risks. Please see the summary and full prospectus for a more complete description of these and other risks of the Funds.
Distributor: Foreside Fund Services, LLC.
This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investment advice.
Photo featured by Paul Steuber on Unsplash