- ARK Invest sold around 76,000 Tesla shares last week
- Tesla’s share price has been declining since the Q2 earrings report
- The company has the upcoming Cybertruck release and China sales cuts up its sleeve
High-profile investors like Cathie Wood tend to make headlines if they’re buying or selling – and this year, Wood has only sold Tesla shares. After her company ARK Invest sold off more shares last week, having already made more sales just before Tesla’s Q2 earning beat, others are now wondering if the shares have peaked for the year.
Tesla’s share price has been heading down since mid-July, prompted in part by the second-quarter earnings call and a surprise management change. But is there still life in Tesla stock, or is it time to consolidate the gains? We’ve laid out Tesla’s performance so far this year and the case for and against.
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Why did Cathie Wood sell Tesla stock?
ARK Invest, which has tech investing stalwart Cathie Wood at the helm, sold around 76,000 shares of Tesla on Thursday for roughly $18.75 million, based on Tesla’s closing share price of $245.34. The shares are held in Wood’s ARK Innovation ETF and the ARK Autonomous Technology and Robotics ETF.
It’s not the first time the investment firm has sold off Tesla stock recently. ARK Invest also divested tranches of shares ahead of Tesla’s second-quarter earnings report, released on July 19. To date, ARK Invest has now sold off close to 884,000 shares.
But it’s not all bad news. Tesla is still the top holding in ARK’s Innovation ETF, with a 10.67% weight, as well as the Autonomous Technology and Robotics ETF, with a 12.98% weight.
Tesla wasn’t the only buzzy tech company that Wood decided to sell last week. Two ARK ETFs sold nearly 10,000 shares in Nvidia, totaling $4.2 million based on Nvidia’s $423.88 closing price. Wood also divested around the same number of Alphabet Class C shares for $1.4 million.
Tesla’s latest quarterly results
You never know what will happen with Tesla’s financial results; the Q2 earnings call was no exception. At first, all seemed well: the company saw record quarterly revenue, reaching $24.93 billion instead of the $24.47 predicted. At the same time, earnings per share arrived at 91 cents adjusted compared to analysts’ 82 cents per share estimates.
While net income was up 20% from last year to hit $2.7 billion, operating income was down 3% at $2.4 billion. The operating margin was 9.6%, the lowest for the last five quarters, and the total gross margin was 18.2%, another low for the same period. This was mainly due to the price cuts Musk implemented on popular Tesla EV models.
While Tesla’s share price was flat after the report, the earnings call plunged the stock. Investors weren’t impressed that Elon Musk and executives couldn’t say when the much-anticipated Cybertruck would start being shipped out, plus a comment about a slowdown in production in Q3 thanks to factory shutdowns wasn’t met with a warm response.
Tesla’s market performance in 2023
As usual, it’s been a year of ups and downs for the world’s biggest EV manufacturer. Tesla’s share price has risen 124% since the start of the year.
One of the biggest drivers in the share price was the news that rivals EV makers Ford and GM would adopt the Tesla EV plug design in order to gain access to Tesla’s fast-charging Supercharger network for their customers. This made the plug design the de facto, with several smaller EV companies following suit. Tesla stock soared 40% in a month as more EV businesses jumped on the wagon.
Slashing Tesla model prices was another risky move from Musk in the spring, with investors wary of Tesla’s high inventory levels. But it paid off, with the EV maker delivering a record number of cars in the second quarter, delivering 466,140 cars in the three months to the end of June. The share price rose 0.9% at the news.
The stock has been on a downward trend since the earnings report was released on July 19, losing 16.7% in value up to last Friday. Aside from the beat, which saw the company’s share price plunge 9.7%, Tesla’s CFO, Zachary Kirkhorn, unexpectedly resigned, prompting fears of instability in management.
The bullish and bearish cases
First off, Wood’s ARK Invest is still bullish on Tesla. The investment firm predicts Tesla will reach a $2,000 per share price by 2027 and up to $20.7 million in sales.
Tesla is also making progress on its hyped-up Cybertruck, which Musk claims has a five-year order backlog and said demand for the beast of an EV was “so off the hook, you can’t even see the hook”. Tesla has previously said the first Cybertrucks will reach customers by the end of this year.
It’s also now hoping to replicate the same success in China with news today it’s slashing Tesla prices in the country. Rival BYD’s share price sank 6% at the news; if Tesla can crack the Chinese market and boost sales there, that’s a huge win for the stock.
Then some fortuitous circumstances could help Tesla, like the Inflation Reduction Act cutting taxes on EVs for the next decade and giving tax breaks to those developing the infrastructure to transition the U.S. into an EV haven.
The Q2 gross margin result sent alarm bells ringing on Wall Street, as Tesla had previously put 20% as the ‘floor’. Musk quickly reassured investors, saying on the earnings call, “The short-term variances in gross margins and profitability really are minor relative to the long-term picture”.
And that operating margin was because of price cuts, which it’s just implemented again in China. While orders might be up, the trade-off is the operating income, which doesn’t impress investors. Musk also hinted Q3 wasn’t looking strong for the company due to necessary upgrades for its factories which would result in shutdowns, so the stock could fall further in the coming months.
And there’s still no word on when the fabled fully autonomous vehicles tech might arrive from Tesla. While the company apparently continues to “make progress”, luxury carmaker BMW is now developing LiDAR self-driving cars and is on its way to beating Tesla to the Level 3 autonomy needed to qualify as a self-driving car.
The bottom line
While the bullish perspective highlights ARK’s optimistic predictions for Tesla and potential market opportunities in China, the bearish view points to concerns about margins, recent price cuts, and competition in the autonomous vehicle sector.
Tesla remains a formidable competitor in the EV market, so don’t write it off yet – just take a balanced perspective in line with your portfolio strategy.
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