money Making sense of Tesla's parabolic rally: Morning Brief
Tuesday, July 14, 2020
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A $300 intraday swing is just another day for Tesla investors.
Tesla’s (TSLA) wild ride continued on Monday.
Shares of the electric carmaker fell 3% to start the week after shares began Monday’s trading session by rallying 16% to a record high just shy of $1,800 per share.
But even with Monday’s big intraday sell-off, the stock has nearly doubled since June 1 and quadrupled from its March lows. As of Monday’s close, the company’s market cap north of $250 billion makes it more valuable than Disney (DIS), Netflix (NFLX), Verizon (VZ), and Coca-Cola (KO) among other blue chip names.
And in many ways, the action we’ve seen in shares of Tesla is a perfect microcosm of the broader market rally that has befuddled many investors over the last several months.
Shares of Tesla have been pushed higher by company news investors viewed positively as well as a re-kindling of the animal spirits that hit markets at the beginning of this year. And just as news regarding the economy and the market’s reaction has been something of a Rorschach test for investors, so too does Tesla’s narrative hinge on similar disagreements over what constitutes positive news and what explanations for the stock’s rally can really be justified.
The latest leg of the stock’s rally was kicked off by better-than-expected vehicle delivery numbers posted in early July.
In the second quarter Tesla delivered 90,650 vehicles, topping estimates for 74,130 vehicles, according to Refinitiv data cited by Reuters. Some analysts called this data a “jaw-dropper.” Skeptics have cited recent price cuts as a sign that demand is weaker than delivery numbers suggest.
In a note to clients published early last week, Adam Jonas at Morgan Stanley said, “The re-rating of the shares is happening with extraordinary speed, even by Tesla’s own historic standards.” At the time Jonas published his note, the stock was trading near $1,400 per share; on Monday, the stock traded as high as $1,774.
Jonas added that the company now looks set to break-even on a GAAP basis in the second quarter, an outcome that “clearly is strong enough to place the company in a materially different risk category in the eyes of the market, triggering a re-rating and broadening the stock’s appeal to entirely new communities of investors.”
In a note to clients published last week, Joe Osha at JMP Securities outlined a valuation framework for Tesla that does indeed make the company look less like a car company and more like the tech behemoth many of its true believers have always argued the company would become.
“We value [Tesla] like other category killers,” Osha said in a note to clients.
“It is true that TSLA makes cars, while [Apple] and [Nvidia] do not, and it is reasonable to point out that those companies are not perfect comps,” Osha added.
“What is clear is that comparing TSLA to ex-growth auto companies that are losing market share and losing money is not useful. We believe that TSLA is a category killer that is still early in the process of building a dominant position in electric vehicles, and the stock needs to be valued in comparison to other similarly successful companies.”
“We have noticed the comp group for Tesla has changed materially as well,” Jonas added.
“No longer is Tesla being compared to legacy automakers that trade at 1/5th or 1/10th of Tesla's market cap. Increasingly, we’re having discussions with investors who want to talk about Tesla valuation vs. the world’s most successful and highly valued tech firms. Names we’re all familiar with that can achieve sustainable above-market growth, software margins, stickiness of platform and proven resiliency in a post-COVID world of elevated macroeconomic uncertainty.”
Back in February, we covered Tesla’s surge to pre-pandemic record highs above $900 per share.
At the time, commentators, strategists, and analysts cited factors ranging from performance chasing, to the biggest short squeeze of all-time, to investors finally appreciating the opportunity in front of the company. All of these factors are still in play. The Robinhood set has also seen a surge in Tesla-related enthusiasm.
And it all contributes to the Tesla story serving as a true something-for-everybody event in what remains among the most puzzling market environments in history.
By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland
What to watch today
Economy
6:00 a.m. ET: NFIB Small Business Optimism, June (97.8 expected, 94.4 in May)
8:30 a.m. ET: Consumer price index MoM, June (0.1% expected, -0.1% in May)
8:30 a.m. ET: Consumer price index excluding food and energy MoM, June (0.1% expected, -0.1% in May)
8:30 a.m. ET: Consumer price index YoY, June (0.6% expected, 0.1% in May)
8:30 a.m. ET: Consumer price index excluding food and energy YoY, June (1.1% expected, 1.2% in May)
Earnings
6:50 a.m. ET: Fastenal Company (FAST) is expected to report adjusted earnings of 36 cents per share on revenue of $1.49 billion
6:50 a.m. ET: First Republic Bank (FRC) is expected to report adjusted earnings of $1.11 per share on revenue of $912.7 million
6:55 a.m. ET: JPMorgan Chase & Co. (JPM) is expected to report adjusted earnings of $1.11 per share on revenue of $30.57 billion
7:00 a.m. ET: Delta Air Lines (DAL) is expected to report an adjusted loss of $4.22 per share on revenue of $1.43 billion
7:55 a.m. ET: Wells Fargo (WFC) is expected to report an adjusted loss of 1 cent per share on revenue of $18.5 billion
8:00 a.m. ET: Citigroup (C) is expected to report adjusted earnings of 38 cents per share on revenue of $19.16 billion
Top News
China says to sanction Lockheed Martin over Taiwan arms sale [Reuters]
SoftBank explores a sale or IPO of chip company arm [Bloomberg]
Google in advanced talks to invest $4 billion in Jio platforms [Bloomberg]
Bank analysts warn of 'confusing, sloppy, and shocking' earnings as COVID-19 extends grip [Yahoo Finance]
YAHOO FINANCE HIGHLIGHTS
These restaurants have filed for bankruptcy and many more are at risk
States extend unemployment benefits as Congress debates extension
PepsiCo will take aim at Kraft Mac & Cheese dominance this fall
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