Tesla Stock: Is It A Buy Right Now? Here’s What Earnings, Charts Show

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Tesla (TSLA) Chief Executive Elon Musk has defied big odds and consistently beat expectations since taking the helm of the electric vehicle manufacturer in 2008. Now, after having done so yet again with a better-than-expected third-quarter earnings report and acceptance into the S&P 500, is Tesla stock a buy?


The report was its fifth straight quarter of profitability for Tesla. It reported adjusted income of 76 cents per share as revenue jumped 39% to $8.77 billion, both topping Wall Street estimates.

Tesla said it still expects to hit full-year deliveries of 500,000. To meet this goal, it would have to deliver 181,000 vehicles in the fourth quarter vs. 140,000 in the third quarter.

However, in an email to employees on Dec. 1 that was widely reported, Musk said Tesla needs to control costs better to achieve future profits already baked into the stock price.

“When looking at our actual profitability, it is very low at around 1% for the past year,” Musk wrote. “Investors are giving us a lot of credit for future profits, but if, at any point, they conclude that’s not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!”

Acceptance To S&P 500

Tesla stock debuted on the S&P Dow Jones Indices on Dec. 21.

Tesla will account for 1.69% of the S&P 500. that makes it the fifth-largest weighting. It’s the sixth-largest company in the S&P when combining both of Alphabet’s (GOOGL) share classes, also trailing Apple (AAPL), Amazon (AMZN) Microsoft (MSFT)and Facebook (FB).

The move to the S&P 500 was expected to spark a flurry of funding trades in Tesla stock, which it did.

Tesla stock rose to an all-time high of 695 on Friday, Dec.18, the last day of trading before its addition to the S&P 500, as fund managers rushed in to buy shares to rebalance funds that are pegged to the benchmark index.

Tesla has undertaken a massive expansion of manufacturing.  Musk wants to eventually build 20 million electric vehicles a year over the next decade — more than double the current production of other auto-making giants — so it’s now on a mission to rapidly expand its manufacturing capabilities.

Tesla took a big step with its third manufacturing plant, where construction is now underway near Berlin. That plant is expected to be completed in March 2021, where it will produce the Model Y.

Then in July, Musk confirmed that its fourth manufacturing plant would be built near Austin, Texas. That factory will be Tesla’s largest, built on a 2,000-acre chunk of land. It will produce the Cybertruck and its big-rig truck called Semi, as well as the Model Y and Model 3.

However, Tesla recently said Cybertruck deliveries won’t begin until early 2022, later than official targets for a late 2021 launch.

“The single motor configuration is currently scheduled to begin production in late 2022 with delivery projected to take place in early 2023,” Tesla said in an email to Cybertruck reservation holders. Musk has also hinted that the Cybertruck needs future battery improvements.

List Of Tesla Competitors Growing

When Tesla starts pumping out cars in Germany, it will go head-to-head in electric vehicles with three established German names: Volkswagen Group (VWAGY), BMW (BMWYY) and the Mercedes Benz division of Daimler AG (DDAIF). It will be a tough battle as all three car companies have reputations for quality cars.

Other serious competitors include Ford Motor‘s (F) Mustang Mach E, the I-PACE from Tata Motors‘ (TATA) Jaguar unit and the Audi eTron. Audi is owned by Volkswagen. Volkswagen’s Porsche arm also has the Taycan.

Tesla also faces tough competition in China. Rivals in China include Xpeng Motors (XPEV), backed by e-commerce giant Alibaba (BABA). Others competitors include Nio (NIO) and Li Auto (LI).

And as Tesla expands manufacturing capacity in Shanghai to begin producing the Model Y crossover, it also recently raised roughly $5 billion in its third stock offering of the year. Tesla’s locally made Model 3 sedan was the second-best-selling electric car in China last month

Despite the growing competition, Musk has maintained a high level of confidence.

“We’re getting way better at making cars,” he said in the quarterly conference call. “You can see that in Giga Shanghai. You’ll see that even more in Berlin. Fundamental architecture of Model Y will be different in Berlin, fundamentally more efficient.”

“About three years from now,” Musk said in September,  we’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous,” Musk said.

He said Tesla can achieve a 54% gain in driving range. In addition, it also targets a 56% reduction in cost per kilowatt-hour.

Tesla Stock Gets High Composite Rating

The IBD Stock Checkup tool shows that Tesla has a best-possible IBD Composite Rating of 99 out of 99. The rating means Tesla stock currently outperforms 99% of all stocks in terms of the most important fundamental and technical stock-picking criteria.

The stock also has a Relative Strength Rating of 99. The rating tracks market leadership. It shows how a stock’s price movement over the last 52 weeks measures against that of other stocks.

In addition,Tesla has an Accumulation/Distribution Rating of A-. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling. A grade of A signals heavy institutional buying. The lowest rating of E means heavy selling. Think of the C grade as neutral.

IBD Leaderboard stock Tesla jumped above its 50-day line on the S&P 500 announcement — a positive indicator. Moreover, the relative strength line, which gauges a stock’s strength against all stocks in the S&P 500, is near a record high. The RS line is the blue line in the chart shown. Typically, the RS line of the strongest stocks is either confirming or leading a stock’s price into new high ground.

In the stock market, timing is critical. So when you’re looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.

Outlook On Tesla Stock

Tesla stock is currently extended from its buy zone after breaking out of a cup with handle with a buy point of 466, according to MarketSmith chart analysis. The buy point ranges up to 489.30, after which it’s considered extended. A stock is considered to be extended when its 5% above the proper entry point. It’s a technical term used to describe the point at which a stock is up in price over its pivot or buy point and is considered riskier to buy.

Why 5%? Following a breakout, many leading stocks tend to pull back to test their buy point or their 10-week moving averages. Setting the cutoff at 5% allows for such pullbacks without tripping the 7%-8% loss-cutting sell rule. If a stock falls 7% to 8% below your entry price, that’s an automatic sell signal.

On Dec. 8, Tesla stock surged to a record high and well above its buy range.

If you want to invest in a large-cap stock, a comprehensive selection of articles is here. The IBD Big Cap 20 index offers a selection of the very best large-cap stocks. Stocks in that group include Etsy (ETSY).  Is Etsy stock a buy?

And be sure to read IBD’s after-the-close The Big Picture column each day to make sure growth investors have a green light.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.


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