Analysis

Tesla

Tesla Q1 earnings preview – Keeping the dream alive

Chris Weston
Head of Research
21 Apr 2021
Q1 earnings – Due 26 April 2021 shortly after 6:00am AEST / 9:00pm GMT / 23:00 server time.

Tesla is always a trader favourite and this quarterly earnings report should garner strong interest. Few stocks create such fierce debate as to the near and longer-term prospects, and when you get such dispersion in the expected outcomes you get movement and this creates opportunity.

Movement is always a draw card for short-term traders and Tesla is the poster child of movement and volatility, especially around key announcements such as quarterly delivery or earnings reports.

Core trading considerations

Consider that short interest is 6% of the free float and granted that's come down significantly from the levels we saw in May 2019, it's still elevated and is an important factor for one’s risk management consideration, notably if the guidance and commentary inspires.

If we look at Tesla’s pedigree over prior quarterly earnings (as a guide), we’ve seen the share price fall in five of the past eight quarterly earnings, with the average move lower being 5.7%. In the three time it rallied the average rally was 9.6% - somewhat skewed by the 17.7% gain seen in Q3 2019. So, one thing is true, historically we’ve seen sizeable moves in price to earnings news – this time may be no different, in fact, if the implied move on the day of earnings (derived from options pricing) is 8.7%, so traders are eagerly anticipating movement.

Importantly Tesla is scheduled to report shortly after the cash market close on 26 April, where it’s earnings should dominate the news flow in after-hours trade. We're one of the few brokers who facilitate trade in Tesla in the after-market, specifically on our MT5 platform. Learn more information on how to access MT5 for share CFDs or watch our short video.

Technical focus (daily chart)

21_04_2021_DFX1.png

(Source: Tradingview)

The primary bull trend that commenced last March remains intact and we'd need to see a move through $620 in Tesla stock for this to break. Tesla's share price is above both the 20 and 50-day MA, but it's unconvincing and the bulls want to see a break above $780 to see the bull trend resume. At this juncture given the many considerations that could drive the share price and the potential for outsize moves, it's easy to see choppy price action in earnings, with traders reluctant to take on too much exposure before the 26th.

What to watch in the earnings release?

Only recently, Tesla released its Q1 vehicle delivery numbers, which were just shy of 185,000 and some 7% above consensus expectations. The street are looking for signs of a more rampant second half, with consensus expectations calling for 831,000 delivered vehicles for the full-year. The share price likely reacts to any guidance above or below here, with expectations they'll confirm a 50% increase in deliveries (year-over-year).

In terms of Q1 earnings, I'm not sure the reported quarter’s numbers matter too intently as it’s about the concept of the future. That said, if we do see a material beat or miss to expectations then it may promote a quick-fire reaction. Here’s what’s expected:

· Q1 EPS of 77c

· Q1 Revenue of $10.33b

· Will they be on track to meet Q2 expectations of $11.62b?

· Gross margins 21%

· Return on equity of 43%

With a market cap of $685b one suspects strong expected future delivery growth is baked in, with the market clearly seeing them as a global leader in the auto market by 2030. Recent stats show Tesla’s market share in EV sales has dropped from 25% to 24%, with VW picking up the pace quite rapidly, while GM are also a key threat. The board will want to arrest that, especially in the US EV market, where its market share has dropped to 61% from 84% vs the PCP.

Many feel that for the valuation to truly justify current levels, the market needs to see genuine clarity the company is moving closer to a world where autopilot and self-driving will be the norm, and the change led and dominated by Tesla. On recent news flow that is some way off – expect any statement around this to garner trader interest.

Traders will also be keenly interested in developments around the full internalisation of its battery development so that it becomes ever more self-reliant. As will be the case with news on the opening of new factories in Austin, China, and Germany which will help with the potential demand. The unveiling of any new models could also be a catalyst for the share price.

For those interested in looking to trade the opportunity in Tesla, it’s time to download MT5 and put Tesla on the watchlist as the prospect of movement and range expansion is clear.

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