Tesla (NASDAQ:TSLA) stock has been a truly incredible thing to watch, at least over the course of the past few weeks. After a rather incredible Robotaxi event on October 10 (and that’s not a good incredible), Tesla’s stock price sunk from around $240 per share all the way below $215 per share. This nearly 10% drop had many investors questioning whether Tesla was worth holding, considering the fact that so much of this automaker’s valuation is based on future robotaxi and robotics/AI revenue.
However, the tables have more than turned in recent weeks, as the company’s recent Q3 results highlighted a return to growth for Tesla’s auto division, and hope for accelerating growth next year. CEO Elon Musk noted he expects between 20%-30% growth in this division next year, commentary which clearly helped the stock move more than 22% higher after the report was released.
So, the question now is whether the robotaxi-related headwinds will outweigh positive sentiment around Tesla’s car business. Let’s revisit the robotaxi event and what led to this selloff first, and then try to come to a conclusion as to what’s going on here. I’ll highlight three specific Tesla ETFs as well, and whether I think they’re worth considering following these rather incredibly volatile moves in TSLA stock.
Key Points About This Article:
- Tesla’s robotaxi event was a full-fledged disaster, with many of the most bullish analysts on the stock revising their expectations downward.
- However, recent earnings results have muddied the waters when it comes to forward expectations for the stock, with Tesla now above pre-robotaxi event levels.
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The Man, the Myth, the Robotaxi Event
Elon Musk is many things, if not a salesman. His job as Tesla CEO is to be consistently selling his vision of the future. Whether that’s trying to assuage investor concerns around flagging auto sales by suggesting Tesla is an “AI company” or promoting what he believes will be the future of transportation (the robotaxi), there are plenty of future growth drivers he’s trying to direct investor attention to at all times.
The recent robotaxi event was certainly interesting, with the company announcing a robotaxi which should come in at a price point below $30,000, allow for low-cost automotive transit (less than $0.20 per mile) and with a number of design components such as butterfly doors and a large center screen coming standard.
While this announcement was certainly intriguing on a number of levels, a few other concerns clearly crept into the minds of investors and analysts covering the company. For one, Tesla did not release any plans for a new lower-cost model, which many had anticipated would be part of this event. Secondly, various videos came out after the event showcasing the fact that this robotaxi was not operational (appeared to be on a skateboard and operated remotely by an employee), with the various Tesla bots serving drinks and interacting with patrons also remotely controlled. So, many of the actual features which are being announced are still clearly in concept stage, meaning the company is likely much further away from realizing any sort of material revenue from these initiatives than many thought.
The Earnings Results
The collective short memories of investors were on full display this week, with Tesla stock absolutely skyrocketing following its Q3 earnings call. The company reported $2.2 billion in net income for the quarter, which represents 17% year-over-year growth, but were driven to a great degree by higher sales of regulatory credits by the company’s energy business. Global deliveries rose, and Musk’s self-proclaimed revenue growth target of 20%-30% appears to be the key driver behind the market’s re-valuation of this stock.
We’ll have to see if Tesla can hit these high targets, as sales growth for Tesla vehicles have slowed to a snail’s pace, even turning negative in past quarters, as demand for the company’s EVs continues to lag both in the U.S. and China, a key market for Tesla. With increasing geopolitical risks abounding, it will certainly be interesting to see if Tesla hits these numbers next year, and what happens to the stock if the company doesn’t.
Are Tesla ETFs Worth Buying?
The three Tesla ETFs I think provide the most exposure to Tesla and its related businesses/underlying thesis are the following:
- VanEck Vectors Low Carbon Energy ETF (SMOG): This fund has a significant allocation to Tesla, with a focus on companies heavily involved in the renewable energy space and related technologies.
- ARK Innovation ETF (ARKK): Run by Cathie Wood, this fund has traditionally been overweight Tesla, with an increased focus on emerging high-growth companies, and those supporting various revolutionary technologies.
- First Trust NASDAQ Clean Edge Green Energy ETF (QCLN): As this fund’s name suggests, the QCLN ETF is focused on a number of players in the EV sector, with a heavier weighting provided to companies promoting the use of green energy.
In my view, each of these ETFs certainly have an underlying mission worth considering. I’m of the view that our economy will certainly undertake a long-term transition toward more renewable sources of energy and transportation. Accordingly, Tesla should be a heavier weighing in these ETFs, and that should be of interest to those bullish on Tesla over the long-run.
In my view, Tesla’s recent surge following these numbers is one I’d be skeptical of. Now, I’m certainly more in the bearish camp when it comes to this company on a pure valuation basis. But I also think the shenanigans we saw with the robotaxi event, and the fact that regulatory credits continue to make up such a significant percentage of Tesla’s profitability, should be concerning to long-term investors. Thus, my take is that these ETFs are likely overvalued, and hold disproportionate weightings to companies like Tesla that are likely to underwhelm in the coming years.
I just don’t see why these ETFs make sense given where many of their components are trading right now.
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