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Stock Watch

Tesla share price gears down post Q4 update

Tesla share price: one of Tesla's models on display

Tesla’s share price came under pressure last night after its latest numbers were released

The results were good, but the earnings expectations were high and they missed the mark. EPS was 80 cents which was nowhere near the $1.03 that equity analysts were expecting.

Tesla share price boom leads to high expectations

It is encouraging to see consecutive quarterly profits but when your stock has been racing ahead, traders are going to have high hopes. On an annual basis, revenue jumped by 45% to $10.74bn, marginally topping the $10.4bn consensus estimate.

Quarterly automotive gross margin was 24.1%, up from 22.5% last year. This suggests the group is getting a better handle on its costs and therefore wringing more profit margin out of each sale. It is all the more impressive that margins were increased in a very challenging climate: most companies have experienced squeezed margins as Covid-19 related expenses have eaten into the bottom line. The firm expects operating margin to increase over time.

Future still looks bright for Tesla

Tesla is positive in its outlook. Average annual growth in vehicle deliveries is predicted to be in excess of 50%. Truck deliveries will begin this year, so that should put pressure on Nikola Corporation. At the end of the fourth quarter, the company’s liquidity position stood at $19.4bn, so it is well funded to fulfil its expansion plans.                                 

The company delivered 499,550 vehicles in 2020, which was fractionally below the 500,000 target. Equity traders forgave Tesla for marginally missing their estimate in light of the production halts caused by the health crisis. If anything, it speaks to the group’s resilience that it essentially achieved its aim even though it suffered setbacks. 2020’s production was a sizeable increase on the 367,500 vehicles delivered in 2019.     

Tesla sees benefits from S&P 500 listing         

In late 2020, Tesla was added to the S&P 500 index. The possibility of such a move was talked about for some time so it wasn’t exactly a shock. The move has added to Tesla's overall public image, and in addition to that, investment products, such as exchange traded funds, that track the performance of the S&P 500, must now purchase the stock, which has also helped the Tesla share price. 

Tesla’s share price has undergone a phenomenal rally as traders are keen to jump on the electric vehicle (EV) bandwagon. Tesla was first off the mark so it is seen as the dominant player in the sector, but more and more companies are going down the EV route. Last week, Ford’s share price hit its highest level since 2018 on the news that it intends to gain more exposure to the EV market Earlier this month it was announced that Japan’s Hyundai and Apple are looking to develop an electric car. Production will not start until 2024 so a potential joint venture won’t be eating into Tesla’s lead for a while, but nonetheless the market is set to become more crowded.               

Tesla share price to to continue phenomenal rise?

In the past year, the Tesla share price has risen by more than 650%. When the pandemic set in, the stock sold off sharply as the broader sentiment was so sour that even stocks that had performed well were caught up in the chaos. But since mid-March 2020, the Tesla share price has been on a phenomenal bull run.

If the uptrend continues, it should target $900. A pullback might encounter support in the $700 area or at $673, the 50-day moving average.