Electric vehicle (EV) leader Tesla Inc. has faced its fair share of challenges recently, with factors like margin pressure and intense competition impacting its performance. However, a promising change of fortune has seen Tesla’s stock soar by 44.7% in the past month as of Jul 5, 2024, reaching a six-month high.

Despite this surge, Tesla shares have encountered a 6.7% decline over the past year, positioning TSLA as one of the worst-performing stocks in the S&P 500 initially in 2024. Nevertheless, a turnaround narrative appears to be on the horizon, sparking investor curiosity about the ideal timing to invest in Tesla.

Tesla Sets New Q2 Delivery Record

Not long ago, Tesla reported impressive delivery figures for the second quarter of 2024, surpassing expectations. These numbers signify a substantial increase in demand, potentially alleviating concerns about excess inventory, especially for its flagship Model 3/Y.

In Q2 2024, Tesla delivered 443,956 vehicles globally, which included 422,405 Model 3/Y and 21,551 other models. Although this figure reflects a 4.8% drop from the previous year, it exceeded analysts’ projections of 436,000 units.

The drop in annual sales underlines the escalating competition in the EV market, urging investors to prioritize profitability per unit sold. During the quarter, Tesla manufactured 410,831 vehicles, comprising 386,576 Model 3/Y and 24,255 other models.

Tesla’s Shift Towards AI Technology

Tesla is currently in the process of transitioning from a car company to a technology and robotics enterprise, with a strong focus on artificial intelligence (AI) and autonomous driving technology. By placing significant bets on driverless software and AI, Tesla aims to rejuvenate its sales performance.

An exciting development is the upcoming launch of “robotaxis” on Aug 8, which represent driverless cars devoid of a steering wheel or pedals. This innovation is believed to be paramount for Tesla’s survival amid escalating competition within the EV sector.

In late April, Tesla’s CEO Elon Musk revealed plans to allocate approximately $10 billion towards AI training and inference this year. The firm’s emphasis on AI and autonomous driving holds significant transformative potential, especially during the current AI wave.

Is Tesla Eyeing Improved Profit Margins?

Industry analysts like Seth Goldstein from Morningstar Inc. foresee improved profit margins for Tesla, anticipating sizable reductions in production and raw material expenses. Goldstein even anticipates a return to profit growth by the following year.

Projections suggest Tesla is set to achieve 35.08% growth in the upcoming year, surpassing the 24.50% anticipated growth in the Automotive – Domestic industry and the modest 9.31% expected growth in the S&P 500. Over the next five years, Tesla’s growth rate is expected to reach 21.60%, outpacing the industry’s 15.40% growth rate.

Electric Vehicle Sector’s Steady Momentum

The first quarter of 2024 witnessed a robust 25% year-over-year surge in electric car sales, in line with ongoing growth. Since 2021, first-quarter electric vehicle sales have consistently represented 15-20% of total annual global sales according to the IEA.

A substantial portion of the first-quarter sales boom emanated from China, with Chinese EV sales projected to expand by nearly 25% in 2024. Following closely is the United States, expecting a 20% increase in EV sales, as per IEA reports.

Furthermore, exceptional growth, in relative terms, was observed in the first quarter beyond major EV markets, showcasing sales escalation by over 50%. This acceleration signifies a rapid global shift towards electromobility.

Challenges and Possibilities Ahead

Potential political changes, especially in regard to EV policies under different administrations, introduce a level of unpredictability in the EV landscape. The slow traction of Tesla’s Cybertruck, the company’s latest consumer model introduction, has also posed challenges.

The EV sector has encountered a tumultuous period, as reflected in the Bloomberg Electric Vehicles Price Return Index, with manufacturers grappling with funding crises. Suggestions for industry consolidation and enhancements in profitability have been put forth by analysts and fund managers for stabilization.

However, potential geopolitical scenarios, like tariff warfare, could significantly impact the industry landscape, especially with the possibility of imposing hefty tariffs on Chinese EV players, potentially favoring Tesla’s position.

Decoding Technical Indicators for Tesla

Recent analyses of Tesla’s technical indicators showcase short-term bullish signals, with its 14 Day Simple Moving Average (SMA) surpassing the 50 Day SMA, indicating positive momentum. Confirming this trend is the positive reading in Tesla’s Parabolic SAR, further substantiating its short-term bullish stance.

However, caution is advised concerning long-term investments, given Tesla’s relative strength index hovering at 80, signifying an overbought status. While Tesla may present enticing short-term opportunities, its long-term viability is yet to be firmly established. Presently, Tesla holds a Zacks Rank #3 (Hold).

Insightful Analysis on Current ETF Trends