Al Root
Tesla stock was up in early trading Friday, despite another downgrade. There are a few good reasons for that.
Shares of the electric vehicle maker were up 2.1% at just under $225 a share in premarket trading while S&P 500 and Dow Jones Industrial Average futures were up 0.8% and 0.7%, respectively.
At that level, shares are still roughly $20, or 9%, below where they closed just before Tesla reported weaker-than-expected second-quarter numbers. Tesla stock dropped 12% after reporting earnings per share of 52 cents. Wall Street was looking for 61 cents, according to FactSet.
The miss generated a few price target cuts and analyst downgrades. Tesla stock caught another downgrade on Friday. Phillip Securities analyst Jonathan Woo cut his rating to Sell from Reduce. His price target went to $135 a share from $145.
Most brokerages have ratings that reflect Buy, Sell, and Hold, but some have different tiers. Sell and Reduce, however, are very similar, which is one reason Tesla stock isn't reacting all that much in early Friday trading.
Another reason is the downgrade reflects things that have already affected the stock this week. Woo cited pricing, tariffs, and profit margin pressure in his cut. "Management spent almost no time dispelling concerns over its stalling auto business," added Woo. That's a problem, but all that was reflected in Wednesday's drop.
Another reason Tesla shares have picked up about $10 from post-earnings lows is that while the quarter wasn't great, it wasn't all that bad. There were a couple of mitigating factors. There was a larger-than-expected restructuring charge for employee layoffs and better-than-expected regulatory credit sales. (Tesla sells credits because it makes more than its fair share of zero-emission vehicles.) Netting those two items together, the quarter came very close to what analysts had predicted.
Tesla stock has also traded down due to technical support. Stock market technicians look at charts to get a sense of where investors have bought and sold stocks in the past. CappThesis founder Frank Cappelleri called the $225 level before earnings. That's where he thought shares could go on a weak report.
There's nothing magical about any support level, but $225 looks reasonable for Tesla stock given what investors are waiting for.
Tesla's robotaxi day is now Oct. 10. Investors want to hear how close the company is to having self-driving cabs on the road and how it plans to make money from its autonomous driving technology.
Robotaxis and self-driving cars are a big deal for Tesla investors. From April lows into second-quarter earnings, Tesla stock added some $300 billion in market value. Much of that gain was self-driving optimism. The quarterly report didn't do much to change the robotaxi outlook.
Write to Al Root at allen.root@dowjones.com
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July 26, 2024 09:03 ET (13:03 GMT)
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