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Can Tesla ETFs Maintain New-Found Winning Momentum?

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Shares of the electric vehicle (EV) giant Tesla Inc. (TSLA - Free Report) have suffered a lot in recent times due to margin pressure, stiff competition and the overall drag in its business growth. However, luck is turning in Tesla’s favor, with its stock surging 44.7% past month (as of Jul 5, 2024). Shares are now hovering around a six-month high.

Despite this huge jump in stock price, Tesla shares have fallen 6.7% in the past year. TSLA even became one of the worst-performing stocks of the S&P 500 in the initial phase of this year. However, a rebound story seems to be awaiting due to a host of reasons. The recent performance now leads to the question of whether it is time to buy Tesla.

Let’s delve a little deeper.

Tesla Sets New Q2 Delivery Record

In early July, Tesla announced better-than-expected deliveries for the second quarter of 2024. The numbers point to improved demand that may help ease concerns around excess inventory for its flagship Model 3/Y (read: Tap Tesla's Better-Than-Expected Q2 Deliveries With These ETFs).

This leading electric carmaker delivered 443,956 (422,405 Model 3/Y and 21,551 other models) cars worldwide in the second quarter of 2024. Though it is down 4.8% from the year-ago quarter, delivery numbers were better than the 436,000 that analysts had expected.

The annual drop in sales reflects the increased competition in the electric vehicles market. The sales of electric vehicles were at a slower pace, which resulted in investors demanding each car sold be more profitable than before. Tesla produced 410,831 (386,576 Model 3/Y and 24,255 other models) vehicles during the quarter.

Tesla’s Foray Into AI Regime

Tesla has been reforming itself from a car company to a technology and robotics company, mainly driven by artificial intelligence (AI) and autonomous driving technology. Tesla is betting big on driverless software and artificial intelligence in an attempt to revive sales.

It is slated to introduce “robotaxis” — a driverless car without a steering wheel or pedals on Aug 8. The next-generation vehicle is widely thought to be key to the electric automaker’s survival, especially as competition heats up in the EV space.

In late April, Tesla CEO Elon Musk announced that the company will spend about $10 billion this year on training and inference AI. Tesla's emphasis on AI and autonomous driving is seen as potentially transformative amid the current AI buzz.

Tesla Awaiting Improved Profit Margins?

Analysts like Morningstar Inc.'s Seth Goldstein predict improved profit margins for Tesla, thanks to lower production and raw material costs, as quoted on Bloomberg. He expects the company to “return to profit growth” next year.

Tesla is expected to record 35.08% growth next year versus 24.50% expected growth from the Automotive – Domestic industry and 9.31% growth expected from the S&P 500. Over the next five years, Tesla’s growth rate is expected to be 21.60% versus the underlying industry’s growth rate of 15.40%.

EV Space Gaining Gradual Momentum

Electric car sales remained robust in the first quarter of 2024, having grown by 25% year over year. Since 2021, first-quarter electric car sales have typically made up 15-20% of the total global annual sales, per IEA.

The major share of the first-quarter sales growth this year came from China. Chinese EV sales are expected to grow by almost 25% in 2024, followed by the United States’ 20% growth, according to an IEA report.

Notably, the key growth in relative terms occurred in the first quarter outside the major EV markets, where sales rose by over 50%, indicating a rapid transition to electromobility in countries worldwide.

IEA now forecasts 2024 EV sales to log a year-over-year increase of 20%. And EVs are likely to command more than one-fifth share of total car sales.

Any Wall of Worry?

Political shifts, including potential policy changes under Trump administration (if he wins the November election), add uncertainty to the EV market as Trump promotes fossil fuel. And Cybertruck, Tesla’s first new consumer model in years, has been slow to gain momentum.

The Bloomberg Electric Vehicles Price Return Index reflects a challenging year for EV stocks. EV manufacturers face huge challenges related to funding crisis. Some analysts and fund managers point to the need for industry consolidation and improved profitability before the sector stabilizes, per the Bloomberg article.

But then, Trump is famous for tariff wars against China. If he wins, he is expected to levy massive tariffs on the Chinese EV players, which should better position Tesla.

What Do Technical Indicators Say?

In fact, Tesla recently saw its 14 Day SMA (Simple Moving Average) going above its 50 Day SMA, suggesting short-term bullishness. The Tesla stock is also seeing a positive reading in its Parabolic SAR, further confirming its short-term bullishness.

But over the long term, one should be careful as the relative strength index of the Tesla stock is hovering around 80. The value is considered overbought. Overall, it looks like Tesla is a good short-term play but it will take more time to present Tesla as a good long-term bet. Tesla currently has a Zacks Rank #3 (Hold).

Zacks Investment Research
Image Source: Zacks Investment Research

ETFs in Focus

Investors seeking to tap the short-term uptrend in Tesla may buy ETFs having a substantial allocation to this luxury carmaker as the ETF approach minimizes company-specific concentration risks. These ETFs include Direxion Daily TSLA Bull 1.5X Shares (TSLL - Free Report) , MeetKevin Pricing Power ETF (PP - Free Report) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Simplify Volt Robocar Disruption and Tech ETF (VCAR - Free Report) and ARK Innovation ETF (ARKK - Free Report) .

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