Tesla’s stock has fallen 20% the past month as bears continue to apply pressure following the electric automaker’s Q3 earnings report. A Tesla turnaround or more selling will provide enough volatility for traders unsure of which side to take, which is where leveraged exchange-traded funds (ETFs) can help.
Currently, the bears have the upper hand following Tesla’s cloudy forecast for future demand.
“Tesla Inc. shares have wiped out nearly one-fifth of their value in less than two weeks amid growing concerns that demand for electric cars is starting to weaken,” Bloomberg reported, noting that the most recent sell-off began in early October “when the electric-vehicle giant dialed back growth expectations during its third quarter earnings call.”
To add to that, commentary from Wall Street analysts also made bullish investors think twice about their positions. It also didn’t help that battery makers like Panasonic and ON Semiconductor Corp “sounded alarms for the EV industry,” once again per the aforementioned Bloomberg report.
An oversupply of lithium, which is used for EV batteries, could also mean that demand could be waning. Furthermore, Tesla’s recent price cuts in order to boost demand could be having a detrimental effect on its revenue in terms of sustaining its future income.
“To drive growth of 500K units this year, Tesla had to cut prices by ~16%, pressuring overall operating margins by 750 bps,” said Bernstein’s Toni Sacconaghi. “It remains unclear if Tesla can further cut prices enough to drive sufficient demand elasticity without potentially becoming FCF negative. We believe that Tesla may have to guide to deliveries below consensus next year AND face lower margins.”
2 Ways to Play Tesla’s Stock
As mentioned earlier, leveraged ETFs can give traders the opportunity to play both sides in the short-term. If future earnings call prove unfavorable to Tesla’s stock, traders can look to the Direxion Daily TSLA Bear 1X Shares (TSLS) for opportunities.
Despite the recent pullback, Tesla’s stock is still up over 80% for the year so that said, traders who see the recent pullback as an opportune time to buy into Tesla’s stock can also take the opposite side of TSLS. For a return to bullishness, they can use the Direxion Daily TSLA Bull 1.5X Shares (TSLL).
For more news, information, and analysis, visit the Leveraged & Inverse Channel.
Originally published on ETFTrends.com on November 2, 2023.
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