Trading Tesla, Inc. TSLA is arguably always an adventure. The stock remains highly volatile, with a beta* of 2.11, making it twice as responsive as the overall market.
Tesla sits at the apex of a rising electric vehicle (EV) industry and is now facing stiffening competition from up-and-coming companies like Rivian Automotive Inc. RIVN and Polestar PSNYW, established traditional car manufacturers like Ford Motor Co. F, General Motors Co. GM, Honda Motor Co. HMC and Toyota Motor Corp. TM, as well as overseas rivals like NIO Inc. NIO and Xpeng Inc. XPEV.
Tesla's ascension to the top of numerous leading stock market indexes, like the NASDAQ 100, has put it squarely in the targets of both retail and institutional investors. It remains one of the most heavily traded — and shorted— stocks on U.S. exchanges, with strong 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 over a potential acquisition.
The bottom line is, for Bulls and Bears alike, ample trading opportunities could exist given the stock’s volatility and the attention it receives. The question is: What catalysts can Tesla traders look forward to for the remainder of 2022? And how can they best trade around them?
Earnings Catalysts to Watch
Trading volume and volatility for Tesla tend to surge around its quarterly earnings reports, with the most recent occurring on July 20 for the second quarter of 2022. Tesla is next expected to announce its third quarter earnings report between October 19 and 24.
As the date of the earnings report approaches, key figures to watch for and compare to consensus analyst estimates could include:
- The continued impacts of inflation and supply chain constraints on gross margins for its automotive segment (its largest source of revenue) by comparing year-over-year quarterly growth/shrinkage.
- Whether Tesla's new Gigafactory in Austin, Texas will exceed the forecasted 1,000-per-week vehicle production estimate set by management.
- The growth rate of its infrastructure — in particular the potential increases in the number of stores, service centers and Supercharger locations.
- The disposition of its remaining 25% holding of Bitcoin BTC/USD after selling 75% at the end of the second quarter.
Tesla shareholders also approved a 3-for-1 forward stock split Thursday, August 4 based on a preliminary vote count. Previously in 2020, shares surged in the weeks after Tesla last effected a 5-for-1 stock split. Traders might be able to take advantage of heightened volatility in the upcoming weeks as investors snap up Tesla shares in anticipation 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 depress its valuation and increase the cost of borrowing for capital. Key dates to watch for leading up to 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 on September 20-21. Chairman Jerome Powell has brought up the possibility of a third consecutive 75-basis point rate hike, with a target Fed Funds Rate of 3.25% to 3.5% by year end2.
Earlier in July, Musk lamented the effects of prolonged high inflation on Tesla's expenses and sales prices, noting that the two new factories in Austin, Texas and Brandenburg, Germany, were "gigantic money furnaces."
Elevated prices for raw materials and, in particular, semiconductors, were cited as a major impact on Tesla's reduced margins. Traders can therefore keep an eye on the producer price index by industry, with semiconductor and other electronic components manufacturing as a potential leading indicator for Tesla's outlook3.
Trading Tesla with Direxion ETFs
Traders looking for amplified exposure to Tesla can use Direxion’s suite of Daily TSLA Bull 1.5X Shares (TSLL) and Daily TSLA Bear 1X Shares (TSLS) in lieu of margin or options.
TSLL seeks daily investment results, before fees and expenses, of 150% of the performance of TSLA for a single day, and TSLS seeks daily investment results, before fees and expenses, of 100% of the inverse of the performance of TSLA for a single day. It is important to note that the funds to not invest directly in TSLA. Traders with a bullish outlook can buy TSLL to go long if they think TSLA will go up. Conversely, traders with a bearish outlook can buy TSLS to go short if they think TSLA will tank.
A strategy that employs TSLL or TSLS to trade around TSLA's next earnings report or economic releases could be a way to either speculate on an upward price move or hedge against a downturn. As with all leveraged ETFs, TSLL and TSLS can be a powerful way to achieve short-term exposure but only if traders do their due diligence on TSLA's short-term outlook, have a strong investment thesis and possess a high risk tolerance.
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 the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock's performance increases, and the Bear Fund will lose money even if the underlying stock's performance decreases, over a period longer than a single day. An investor could lose the full principal value of his or her investment in a single day.
Sources:
- https://www.bls.gov/schedule/news_release/cpi.htm
- https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
- https://fred.stlouisfed.org/series/PCU33443344
*Definitions:
- Beta describes how the expected return of a stock or portfolio is correlated to the return of the financial market as a whole. A Beta greater than 1.00 indicates the portfolio is more volatile than the market, and a beta less than 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 market 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 the benefits of diversification. An investor could lose the full principal value of his or her investment in a single day.
Leveraged and inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Funds will lose money even if the underlying stock’s performance increases over a period longer than a single day.
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary 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 summary prospectus should be read carefully before investing.
TSLA Trading Risk – The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
Tesla Risk: The future growth and success of Tesla, Inc. are dependent upon consumers’ demand for electric vehicles, and specifically, its vehicles in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles in general and Tesla, Inc. vehicles does not develop as Tesla, Inc. expects, develops more slowly than it expects, or if demand for its vehicles decreases in our markets or our vehicles compete with each other, the business, prospects, financial condition and operating results of Tesla, Inc. may be harmed. Tesla, Inc. may fail to meet its publicly announced guidelines or other expectations about its business, which could cause the price of TSLA to decline significantly.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. Investors could lose the full principal value of his or her investment in a single day. A Fund’s investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund’s other portfolio holdings, higher price volatility and lack of availability. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation/Tracking Risk, Tesla, Inc. Investing Risk, Single Security Risk, Market Risk, Indirect Investment Risk, Trading Halt Risk, and risks specific to the consumer discretionary sector, electric and autonomous vehicles companies, and automotive companies. Additional risks include, for the Direxion Daily TSLA Bear 1X Shares, risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.
Distributor: Foreside Fund Services, LLC.
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