Can bumper earnings revive the Tesla share price?

The Tesla share price [TSLA] had a tremendous annual performance in 2020, growing by 743.4% throughout the year. The rally looked like it would continue as the Tesla share price climbed 27.6% since the turn of the year to reach a high of $900.40 during intraday trading on 25 January. However, the stock was quick to fall from its lofty peak.

Between January and March, the Tesla share price followed a downward trajectory that took it as low as $563 when it closed on 8 March — 37.5% lower than its January peak and a 20.2% year to date decrease. Although the Tesla share price was quick to bounce back into the green, reaching $707.94 on 15 March, the stock declined to $611.29 on 29 March.

  

While the Tesla share price managed to regain most of its lost value when it closed at $762.32 on 13 April, it declined again before ending the month up 6.2%. The Tesla share price has proven to be unstable so far this year, but the volatility could be evening out as the stock’s fluctuations have been less drastic over the past month. However, as of 22 July, when it closed at $649.26, the Tesla share price was down just shy of 8% in the year so far.

Considering its influence on the electric vehicle (EV) market, investors with an EV focus will be particularly interested in the company’s upcoming second-quarter earnings release, due 26 July.

 

What’s been fuelling the Tesla share price?

When Tesla released its first-quarter results on 2 April, it posted non-GAAP earnings of $0.93 per share. This beat the Zacks Equity Research consensus estimate of $0.79 by 17.7% and marked an impressive year-over-year growth of 304% from the year-ago quarter. Meanwhile, revenue grew 74% year-over-year to a total of $10.39bn, beating consensus estimates by 4.7%.

Despite positive first-quarter earnings, the Tesla share price fell 14.8% between 1 April and 19 May to $563.46, just $0.46 higher than its lowest close so far this year.

  

Looking ahead, analysts at Zacks expect Tesla to produce earnings of $0.90 per share in its upcoming report, while revenues are expected to come in at $11.39bn. For the full year, Zacks’ consensus estimate is predicting earnings to reach $4.29 per share and revenue of $49.27bn.

 

The EV outlook

“The EV space is going to be competitive, and it isn’t clear which pure-play EV names, if any, will come out on top,” Rich Smith wrote in The Motley Fool while comparing Tesla’s share price to that of traditional auto manufacturers.

“For anyone with a conservative investment style or one that’s value-conscious, it’s hard to see EV stocks as anything but overhyped relative to their actual business performance at this point.”

However, EV supporters often argue that companies like Tesla are more akin to tech companies than carmakers, which may play a big part in the future of EV stocks.

“We believe it is possible that the value of Tesla’s recurring software revenue may exceed the value of its hardware business,” wrote Adam Jonas, an analyst at Morgan Stanley, in a research note seen by Electrek. This was based on the fact that at $199 per month, Tesla’s recently launched Full Self-Driving (FSD) software costs more than Jonas predicted.

“For anyone with a conservative investment style or one that’s value-conscious, it’s hard to see EV stocks as anything but overhyped relative to their actual business performance at this point” - Rich Smith

 

As one of the leading brands of the EV industry, Tesla’s performance is a key indicator for thematic ETFs such as the KraneShares Electric Vehicles & Future Mobility ETF [KARS] and Global X Autonomous & Electric Vehicles ETF [DRIV] — both of which have been outperforming the Tesla share price.

While both funds have followed similar trends this year, the KraneShares Electric Vehicles & Future Mobility ETF has outperformed its peer so far this year. The fund is up 18.3% in the year to date (through 22 July), while the latter has climbed just 16.3%.  

As of 22 July, the KraneShares Electric Vehicles & Future Mobility ETF had a 4.68% weighting in Tesla shares, making it the fund’s third-biggest holding. Meanwhile, the stock was the ninth-biggest holding in the Global X Autonomous & Electric Vehicles ETF at 2.19%.

While it remains unclear whether Tesla’s share price can exceed its January peak, the EV market is set to continue growing, with research firm Million Insights forecasting the global market to hit $1.21bn by 2027.