Tesla Shares: Why Next Week is Make or Break

Having traded to fresh 52-week lows yesterday, we flag up what's next for the EV giant.

Tesla and Elon Musk are frequently in the news, usually for a mix of the right/wrong reasons. Yet there’s no denying a cult following of the EV company, the charismatic founder and the share price.

Unfortunately for Tesla bulls, the past few months have been tricky to navigate. The share price is down 13% this week, and closed Thursday at $149.93. This marks 52-week lows for the firm at a key juncture as we head into next week.

Today, we’ll run through:

• Some of the recent problems for the firm

• Why next week is so important

• How to trade it (both short term tactical and long term)

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Recent headaches

Let’s start with the Q1 delivery figures, which always comes out ahead of the financial results for that period.

At 386k, the figure was a sharp miss from expectations of 450k. It was also one of the first prints that was lower than the year-on-year figure. In this case, Q1 2023 showed 423k deliveries. The historical growth in delivery numbers can be shown below.

Given the growth in the past, this miss understandably caused some share price selling in the immediate aftermath. Bulls will be hoping that this is just a blip on the radar, rather than the start of a more prolonged slump.

Another problem has come from the stocks beta to the broader stock market. The Nasdaq 100 has struggled over the past week, experiencing a sharp drawdown from the all-time highs.

As the poster child of the growth stock brigade and a proud member of the MAG7, it’s not surprising to see the stock underperforming during a sell off in the broader market. However, for those that feel this correction in the index hasn’t finished yet, it logically could spell more downside for Tesla in the coming days.

Finally, we flag up the recent global headocunt reduction announcement. Musk confirmed that the business would be laying off more than 10% of its global workforce, equivalent to at least 14,000 roles. This is being done to counterbalance the lower demand currently seen for EV’s.

Even though the measure is understandable, job cuts are historically seen as a short-term red flag for the particular stock in general. Tesla appears to be no exception based on the recent price action.

A big week ahead

Q1 Results

To begin with, let’s talk through the Q1 results that are due out on April 23rd after market close.

Dan Levy of Barclays did an interview with CNBC earlier this week, where he flagged up several negative points that he expects to come from the earnings report next week. As a side note, Barclays recently cut their Tesla price target from $225 to $180. His three main points were:

1. "We expect a 1Q miss with gross margins below consensus. Moreover, we expect little commentary from Tesla to dissuade investors that near-term fundamentals remain weak."

2. "Free cash flow may be negative, marking the first quarter since 1Q20 of negative FCF. There could be some shock factor to this result."

3. "While investors will enter the call with significant questions on Tesla's strategy, we believe many of these questions may be unanswered. And with significant uncertainty remaining on the investment thesis, it could lead investors to capitulate."