Key Points
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Electric vehicle maker reported stronger-than-expected growth in its deliveries in Q2.
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The share price drop underscores investors’ difficulty in pricing shares of an EV company that’s also evolving into an AI outfit.
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Shareholders must recognize that Tesla ebbs and flows differently, forcing investors to own it with one of two very specific mindsets.
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Given nothing more than the company’s reported numbers, shares of electric vehicle maker Tesla (NASDAQ: TSLA) should have soared following the July 2 release of its total Q2 deliveries.
The 480,126 automobiles it shipped in Q2 were not only up 25% year over year, but topped analysts’ consensus estimate of 406,024 units. Nevertheless, Tesla shares immediately stumbled in response to the report and haven’t budged in the meantime, even though the market has made some forward progress during this stretch. What gives?
It’s a complicated answer because … well, there’s a complicated dynamic surrounding this company and its stock.
The rest of the story
In a perfect world, stocks’ prices make sense, reflecting the underlying companies’ potential and risk. When it’s impossible to determine what a company could be worth in the foreseeable future, though, investors’ assumptions end up all over the map, just reflecting the market’s ever-changing perception of that name.
That’s largely what’s happening here. While founded as an EV outfit, Tesla’s foray into energy storage, robotaxis, solar panels, and now an artificial intelligence robotics business that founder and CEO Elon Musk suggests could be the “biggest product of all time” is making it difficult for investors to figure out what the stock’s really worth — it’s a budding AI company that also happens to make electric vehicles. And in this instance, it’s difficult to deny that the stock’s sizable run-up in late June set the stage for knee-jerk profit-taking, regardless of the delivery numbers the company would ultimately report.
Complicating matters is that shares are still outrageously priced at more than 170 times projected profits.
In other words, nobody can be too terribly surprised that Tesla shares tumbled when they seemingly shouldn’t have. One of this ticker’s core current attributes is near-term unpredictability.
That said, the market is also connecting dots that aren’t Tesla-specific, yet still paint an alarming picture for the electric vehicle industry. This includes Ford Motors Company‘s (NYSE: F) 41% tumble in EV sales for the same quarter, when General Motors‘ (NYSE: GM) fell 33%.
That’s mostly the result of the wind-down of EV subsidies within the United States, although Tesla didn’t exactly outshine its competition on other fronts either. China’s electric vehicle powerhouse BYD (OTC: BYDDY) bounced back from a disappointing Q1 to reclaim its lead from Tesla in terms of worldwide EV deliveries, shipping 557,090 battery-electric vehicles in Q2. It’s not necessarily a direct setback for Tesla. Every EV that makes it to the market, however, crimps Tesla’s already-waning pricing power.
No in-between
That’s the chief challenge of buying, selling, or holding a stake in Tesla, of course. There are as many unknowns as there are knowns, and the market will fill in the blanks with whatever knowns it can find when it finds them. The problem is, these knowns are often quickly replaced by the next ones as they surface — some bullish, some not. That’s not necessarily a bad thing. It’s just something to keep in mind.
So is this: If you’re considering Tesla for your portfolio, either respect that it’s getting blown around by ever-changing near-term narratives, or it’s a true buy-and-hold (volatile) EV/AI bet to tuck away for a long, long while. Any intended holding period in between could prove maddening, as we’ve already seen just this month.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company and General Motors. The Motley Fool has a disclosure policy.
