Trading with Tesla, Inc. TSLA is always an adventure. The stock remains highly volatile with a beta* of 2.11, twice as responsive as the overall market.
Tesla is at the forefront of a burgeoning electric vehicle (EV) industry and is now facing increasing competition from emerging companies like Tesla Rivian Automotive Inc. RIVN and North Star PSNWestablished traditional automakers such as Ford Motor Co. f, General Motors Co. GM, Honda Motor Co. HMC and Toyota Motor Corp. TMas well as overseas competitors like NIO Inc. NEVER and Xpeng Inc. XPEV.
Tesla’s rise to the top of numerous leading stock indexes, such as the NASDAQ 100, has put it in the spotlight with both retail and institutional investors. It remains one of the most heavily traded — and shorted — stocks on U.S. exchanges, with heavy option volume.
Elon Musk, Tesla’s eccentric CEO, remains capable of sending retail investors into a frenzy with memes, antics, and high-profile feuds like his current lawsuit Twitter Inc. TWTR about a possible takeover.
The bottom line is that there could be ample trading opportunities for both bulls and bears given the stock’s volatility and the attention it is receiving. The question is: what catalysts can Tesla dealers look forward to for the rest of 2022? And what’s the best way to trade around them?
Yield catalysts to watch
Tesla’s trading volume and volatility tends to rise around quarterly earnings reports, most recently on July 20 for the second quarter of 2022. Tesla is expected to announce its third-quarter earnings report between October 19 and October 24.
As the earnings report date approaches, the more important metrics to look out for and compare against analyst consensus estimates are:
- The continued impact of inflation and supply chain constraints on gross margins for the automotive segment (its largest source of revenue) by comparing quarterly growth/shrinkage year-on-year.
- Whether Tesla’s new Gigafactory in Austin, Texas, will surpass management’s projected vehicle production estimate of 1,000 per week.
- The growth rate of its infrastructure — specifically, the potential increase in the number of stores, service centers, and Supercharger locations.
- The sale of its remaining 25% stake in Bitcoin BTC/USD after selling 75% at the end of the second quarter.
Tesla shareholders also approved a 3-for-1 forward stock split on Thursday, August 4 based on a preliminary vote count. Earlier in 2020, shares surged in the weeks after Tesla last performed a 5-for-1 stock split. Traders could benefit from the increased volatility in the coming weeks as investors buy Tesla shares in anticipation of the split date.
Macroeconomic factors to watch
As a growth stock, Tesla is likely to be hit by inflation and rising interest rates, which could depress its valuation and raise the cost of borrowing capital. Some 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 13 September and 13 October1 respectively.
- The Federal Open Market Committee (FOMC) meets September 20-21. Chairman Jerome Powell has raised the possibility of a third straight rate hike of 75 basis points, with a target for the fed funds rate of 3.25% to 3.5% by the end of the year2.
In early July, Musk lamented the impact of persistently high inflation on Tesla’s spending and selling prices, noting that the two new factories in Austin, Texas and Brandenburg, Germany, were “gigantic money-making furnaces.”
Increased prices for commodities, and semiconductors in particular, were cited as the main impact on Tesla’s lower margins. Dealers can therefore keep an eye on the producer price index by industry, with semiconductor and other electronic component manufacturing a potential leading indicator of Tesla’s outlook3.
Trade Tesla with Direxion ETFs
Traders seeking increased exposure to Tesla can use Direxion’s suite of Daily TSLA Bull 1.5X Shares (TSLL) and Daily TSLA Bear 1X Shares (TSLS) instead of margin or options.
TSLL will target daily investment results before fees and expenses of 150% of TSLA’s performance for a single day and TSLS will target daily investment results before fees and expenses of 100% of the reciprocal of TSLA’s performance for a single day. It is important to note that the funds do not invest directly in TSLA. Bullish traders can buy TSLL to go long if they think TSLA will rise. Conversely, traders with a bearish outlook can buy TSLS to go short if they think TSLA will weaken.
A strategy using TSLL or TSLS to trade around TSLA’s next earnings report or economic releases could be a way of either speculating on a price move up or hedging 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 carefully consider TSLA’s short-term prospects, have a strong investment thesis, and have a high risk tolerance.
– Beta describes how the expected return on a stock or portfolio correlates with the return on 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 basket of consumer goods and services.
Investing in the funds involves a high level of risk. Unlike traditional ETFs or even other leveraged and/or inverse ETFs, these single stock leveraged and/or inverse ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification.
Leveraged and inverse ETFs have daily leveraged investment objectives, which means they are riskier than non-leveraged alternatives. You aim for daily targets and should not track the performance of the underlying stock for more than a day. They are not suitable for all investors and should only be used by investors who understand leverage risk and who actively manage their investments. The Funds lose money if the underlying stock’s performance is flat, and the Funds may lose money even if the underlying stock’s performance increases for more than a day.
An investor should carefully consider a Fund’s investment objective, risks, charges and expenses before making an investment. A fund’s prospectus and prospectus contain this and other information about 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 fluctuate widely in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme swings in price and volume, often unrelated or disproportionate to the operating performance of those companies.
Tesla Risk: The future growth and success of Tesla, Inc. depends on consumer demand for electric vehicles, and particularly its vehicles, in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles generally and Tesla, Inc. vehicles does not perform as Tesla, Inc. expects, develops more slowly than expected, or if demand for its vehicles in our markets decreases or our vehicles compete with each other, we will Tesla, Inc.’s business, prospects, financial condition and results of operations could be harmed. Tesla, Inc. is unable to meet its publicly disclosed policies or other expectations for its business, which could cause the price of TSLA to decrease significantly.
Risks of Direxion Shares – An investment in each Fund involves risk, including the possible loss of capital. Each Fund is undiversified and involves risks inherent in a Fund concentrating 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 Funds’ risks include the effects of compounding and market volatility risk, leverage risk, derivatives risk, counterparty risk, rebalance risk, intraday investment risk, daily correlation/tracking risk, Tesla, Inc. investment risk, risk of an individual security and market risk, indirect investment risk, stop trade risk, and risks specific to the consumer discretionary sector, electric and autonomous vehicle companies, and automotive companies. Additional risks for Direxion Daily TSLA Bear 1X Shares include short selling and cash transaction risks. Please refer to 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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