Will Tesla Come to a Screeching Halt?

There are few C-Suite figures more divisive than Elon Musk.

I’ve even gone so far in the past to highlight him as the quintessential example of “CEO risk.” The antics and escapades of Musk – both favorable and infamous – are directly felt by Tesla (TSLA) investors.

At the end of January, I outlined why we would likely see headwinds for the EV maker in the early part of 2024.

And here we are, Tesla shares have declined more than 43% so far year-to-date.

But back in January, I also pointed out that Tesla shares have only delivered a negative annual return twice since going public.

With the company scheduled to report first quarter earnings this evening, the question we’re faced with is: Is there more pain ahead?

Putting the Puts in Q1 Earnings

One of my favorite strategies to employ is using my VertEA analysis.

It’s beneficial for both long-term holds and short-term trades.

It also provides a much-needed crystal ball into what to expect from the most volatile season of the year: earnings season.

Well, here’s the bad news (and good news for put buyers)… Of all the days on the calendar, Tesla investors need to fear first quarter earnings the most.

Since 2015, the EV maker has screeched to a halt on this report, tumbling seven times out of the last nine years…

And this included a stretch of six consecutive losses on this report from 2016 to 2021. What’s also important to note is that almost all the losses are fairly significant. Of the seven drops, six were 4.2% or more.

In all, Tesla shares are averaging a one-day decline of 3.37% on this earnings release.

That’s what we know before even taking a peek at fundamentals.

And here, the view isn’t great.

Wall Street is expecting the EV powerhouse to report $22.15 billion in revenue. This is a step down from the $25.2 billion it reported in the fourth quarter. And a year ago, Tesla reported $23.3 billion in total first quarter revenue. Meanwhile, earnings per share (EPS) is projected to decline 40% from $0.85 in the first quarter of 2023 to $0.51 this year.

Tesla is in a race to the bottom with other EV makers. And the company keeps slashing prices as it has the beefiest margins. It just announced its latest round of price cuts this week. But that strategy – which may succeed over in the long run – comes with short-term pain.

Musk’s marquee company even announced in recent weeks that it was laying off 10% of its global workforce.

EV demand in the U.S. is not as robust as expected. And we’ve witnessed this across the board. For example, General Motors (GM) cut its projected EV sales for 2024 by more than half. That meant throwing away the idea of selling 400,000 by mid-year to a soft target of 200,000 by year end.

So, the long and short of it is this… the trend is not Tesla’s friend on first quarter earnings. The options market is predicting a +/-9% move tonight. Based on yesterday’s close, that would mean a move in shares to as high as $154.77 or as low as $129.33.

My VertEA says to side with a move lower. Expect on average a decline of 3.37%. Though, six of the last seven first quarter one-day declines have been 4.2% or more. That means a move lower to around $137.27 or roughly $136.05.

Happy hunting,

Matthew