Tesla: Can AI & Price Cuts Fuel a Bull Run, or Is it Time to Go Short?
Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. Investing in the Funds is not equivalent to investing directly in TSLA.
Of all the “Magnificent Seven” stocks, shares of Tesla, Inc. (Ticker: TSLA) have struggled the most in recent months. This has led many to go as far as question its place as a member of the Magnificent Seven. Could such sentiments be a contrarian signal for a return of a bull trend? Or does it warn of further woes for the automaker?
Can Tesla Rely on Cars Alone?
Despite making notable advancements in artificial intelligence technology, Tesla remains an automotive manufacturer at its core. There’s been major price cuts in vehicles over the past couple of years which have hurt sales numbers and margins, and it seems like the company’s objective is to sell more cars in time.
Tesla’s goal is to sell 20 million electric vehicles a year by the end of the decade – it is a lofty goal, no doubt, as this would be double Toyota’s numbers, the world’s largest automaker. Currently, the company’s strategy is to lower production costs to help boost margins following price cuts.
If this is successful, it could become a catalyst for another round of earnings growth due to increased profit margins. Not to mention, the company is just one innovation away from captivating the investment community again.
In the short-term, any signs of getting closer to this goal may benefit Direxion’s Daily TSLA Bull 2X Shares (Ticker: TSLL), which seeks daily investment results, before fees and expenses, of 200% of the performance of the common shares of Tesla, Inc. (Ticker: TSLA), could experience a rebound.
Below is a daily chart of TSLA as of June 13, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
The slanted blue line represents a downtrend. A downtrend describes the price movement of a financial asset when the overall direction is downward.
Are Such Expectations Unrealistic?
The big question is whether such hopes for becoming the top automaker in the world are based in reality. Although Tesla has been a leader in the electric vehicle space, it still needs to stop the bleeding on the sales front.
Traders would be wise to keep an eye on Tesla’s next earnings report, which is slated to be released on July 17. If the company reports disappointing results, then its downside woes may not be over yet.
Direxion’s Daily TSLA Bear 1X Shares (Ticker: TSLS), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the common shares of Tesla, Inc. (Ticker: TSLA) may offer an opportunity to capitalize on another selloff in that situation.
There are also mounting economic concerns on the horizon. Q1 Gross Domestic Product (GDP)* has already been revised lower. The next revision is on June 27, and if it’s revised lower again, it could be a warning sign that a recession is on its way, which could hurt consumer spending, and ultimately, companies like Tesla.
Equity and Sector Alternatives
For traders seeking other concentrated, leveraged equity positions, Direxion offers funds that track names like Apple, Nvidia, Microsoft, Amazon, and more. Investing in the single stock ETFs is not the same as investing directly in the respective underlying security.
The Direxion Daily AAPL Bull 2X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 200% of the performance of Apple Inc. common stock, while the Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Apple Inc. common stock.
The Direxion Daily NVDA Bull 2X Shares (Ticker: NVDU) seeks daily investment results, before fees and expenses, of 200% of the performance of NVIDIA Corporation common stock, while the Direxion Daily NVDA Bear 1X Shares (Ticker: NVDD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of NVIDIA Corporation common stock.
The Direxion Daily MSFT Bull 2X Shares (Ticker: MSFU) seeks daily investment results, before fees and expenses, of 200% of the performance of Microsoft Corporation common stock, while the Direxion Daily MSFT Bear 1X Shares (Ticker: MSFD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of Microsoft Corporation common stock.
The Direxion Daily AMZN Bull 2X Shares (Ticker: AMZU) seeks daily investment results, before fees and expenses, of 200% of the performance of Amazon.com, Inc. common stock, while the Direxion Daily AMZN Bear 1X Shares (Ticker: AMZD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Amazon.com, Inc. common stock.
The Direxion Daily META Bull 2X Shares (Ticker: METU) seeks daily investment results, before fees and expenses, of 200% of the performance of Meta Platforms, Inc. common stock, while the Direxion Daily META Bear 1X Shares (Ticker: METD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Meta Platforms, Inc. common stock.
Traders looking for broader but more leveraged exposure in the equity space may find an opportunity with Direxion’s Daily S&P 500 Bull 3X Shares (Ticker: SPXL) and Direxion Daily S&P 500 Bear 3X Shares (Ticker: SPXS), which seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the S&P 500 Index. There is also the Direxion Daily Technology Bull 3X Shares (Ticker: TECL) and Daily Technology Bear 3X Shares (Ticker: TECS), seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the Technology Select Sector Index.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The S&P 500® Index (SPXT) is designed to be comprised of stocks that are the 500 leading, large-cap U.S. listed issuers. The securities are selected on the basis of market capitalization, financial viability of the company, sector representation, public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
One cannot directly invest in an index.
The Fund has derived all disclosures contained in this document regarding Tesla, Inc. from publicly available documents. In connection with the offering of the Fund’s securities, neither the Fund, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Fund, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Tesla, Inc. is accurate or complete. Furthermore, the Fund cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Tesla, Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Tesla, Inc. could affect the value of the Fund’s investments with respect to Tesla, Inc.
Tesla Investing Risk — The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
Tesla, Inc. Investing Risk — Tesla, Inc. faces risks associated with future growth and success of consumers' demand for electric vehicles; increasing competition; variability in the market for electric vehicles; potential delays in developing and launching new products; mismatches between supply and demand for the products; charging networks may be difficult to establish; product liability claims; cyberattacks; financial costs; system security and data breeches; as well as the risks related to the fact that communications from Mr. Musk to the public may significantly impact the trading price of TSLA.
Automotive Companies Risk — The automotive industry can be highly cyclical, and companies in the industry may suffer periodic operating losses. Automotive companies can be significantly affected by labor relations, fluctuating component prices and supplier disruptions.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Tesla, Inc. Investing Risk, Industry Concentration Risk, Market Risk, Indirect Investment Risk, Cash Transaction Risk,and risks specific to the consumer discretionary sector, electric and autonomous vehicles companies, and automotive companies. Additional risks include, for the Direxion Daily TSLA Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily TSLA Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.