Take Your Profits On Tesla

On July 3rd, I wrote that Tesla (TSLA) was a "sell again". One of the many things I have learned over the past 46 years of investing is that timing is and always will be a challenge. Since I wrote that piece, Tesla has rallied a lot. Now, though, it is down:

When I wrote the piece earlier this month, the stock was gapping up twice and had run up a lot from the recent low. The blue arrow points to the trading during the day of July 3rd. The stock was at about $235 ahead of the market open, and now, in the early hours ahead of trading today but after the Q2 report, the stock is about $227. My good call wasn't that good! The stock ran up to $271 during trading on July 11th.

Traders should take profits on TSLA. What am I saying? Well, taking profits makes sense. So does taking losses. The key is to understand the risks and that no one can KNOW what is going to happen in the future. The same logic that I was using to be negative on TSLA from a trading perspective now applies in reverse: the gap. I know that not all gaps get filled and that it can take a long time if they do. We will be gapping down today it appears. Those who are short should consider covering some of their short. I did!

I think that everyone has different time-frames, and people who like Tesla in the "long-run" shouldn't really care perhaps. While the price is lower today than at the beginning of the month, I still think that investors who own it should think about selling it.

The quarter the company reported was not a good one. Sales rose a bit more than expected, reaching $25.5 billion. This was up just 2% from a year ago, though. Yuck! The car business was weaker, with its revenue falling 7% from a year ago. Capital spending increased, and profits were weaker than expected. The company reported profits of $1.5 billion, which sounds big, but this was down from $2.7 billion a year ago. Operating income was $1.6 billion, down from $2.4 billion. Analysts had expected $2.2 billion. This was a big miss!

The valuation remains very high, with a market cap last night of $763 billion and an enterprise value of $747 billion. Before the report, analysts were forecasting 2024 adjusted EBITDA of $13.9 billion. For 2025, they were expecting $18.6 billion. Long-term investors should check these estimates when they are updated.

For those who want to understand why Tesla rallied so much recently, I think there are several things to consider. The Magnificent 7, of which it is a member, have been doing well, and many investors were likely excited by the underperformance relative to the other six. In my last stock article from a week ago, I included a chart of the Magnificent 7 on a year-to-date basis. Here is the update (through last night) (with Tesla included this time!):

Tesla is the only one that was down as of last night, and it is down more today. The S&P 500 was up 16.5% year-to-date, which is less than each of the others.

Beyond this reason, Elon Musk's embracement of Trump may have played a role. I am not sure that really matters.

I remain negative on Tesla and, more broadly, large stocks, especially large technology stocks. For those who are short, I think this is the right positioning, though I suggest paying attention to the gap down this morning and seeing it as a chance to consider taking some profits. Perhaps more importantly, for those who have invested in Tesla, I suggest taking profits despite this lower price today. Maybe wait for a bounce, but this is an expensive stock!