An 11% rally in a sector leader, like Tesla (TSLA) on Friday translated into a jump in other stocks in the sector. But not all equally. The move was most clearly concentrated in shares of electric vehicle charging stocks.
Yesterday Tesla (TSLA) reported fourth-quarter earnings of $1.19. That did beat Wall Street projections by 8 cents a share. Revenue climbed 37.2% from a year earlier. That was in line with market expectations. And today Tesla shares closed up 1% to $177.90. What turned a modest earnings beat into a huge day for Tesla shares?
Today I posted my two-hundred-and-twenty-first YouTube video: Quick Pick Watch Tesla This week’s Quick Pick isn’t a “buy,” it’s a “watch.” Tesla (NASDAQ: TSLA) saw its stock down 37% in December–not for the year, but in ONE MONTH. The stock is down 65% for the year. If you want to look for some support for the current low of 107, you’d have to look years back. Throughout the year there has been steady support and resistance at 206-217 but around November, the stock took a major dive and doesn’t look to be recovering any time soon. Monday, Tesla announced its delivery news for the fourth quarter of 2022. While it delivered a record 405,278 cars that was below the consensus. One of Elon Musk’s problems is he continues to over-promise and under-deliver. So while Musk promised a delivery growth of 50%, the actual 40% growth-although extremely impressive-is diminished since it missed company-generated expectations. On top of this, Tesla has announced it’s coming out with a $7500 discount in China, where sales are slumping, and the company also said it would reduce production in China. Tesla also has to figure out how to handle the lower-priced end bottom of the market where companies like GM have moved in. The Inflation Reduction Act offered subsidies, credits, and incentives to buy electric cars, but only one Tesla model made the list due to their high prices and battery packs that didn’t meet made-in-American standards. I’m not shorting Tesla after this tumble. It’s a good car company with impressive technology. But the valuation problem remains. I’ll be keeping my eye on Tesla’s share price, and you should too.
Tesla (TSLA) can’t win for winning. On Monday, while U.S. markets were, fortunately, closed, the company reported record quarterly deliveries for the fourth quarter of 2022 of 405,278 cars. Unfortunately, Tesla had convinced Wall Street to look for delivery of 420,7690 cars. So even record deliveries amount to a miss. For a third straight quarter, Tesla’s deliveries missed company and Wall Street projections. The company saw deliveries rise 40% in 2022, but that too was short of the 50% growth targeted by the company. As of the close today, January 3, Tesla shares were down 12.24%
As of 2:30 p.m. New York time today, December 27, shares of Tesla (TSLA) were down 8.59%. Domestic Chinese electric vehicle maker NIO (NIO) was down 8.71%. The problem for both companies? The new wave of Covid has cut demand in the Chinese market and forced the shutdown of production at the companies’ factories.
Rising production and slowing sales have led Tesla (TSLA) to cut the price of the cheapest Model 3 sedan, built in China, by 5% to 265,900 yuan ($36,774), today, Monday, October 24. The company dropped the starting price of the Model Y SUV by 8.8% to 288,900 yuan. The roots of the problem include competition from local Chinese electric vehicle makers led by BYD Co. (BYDDY)–which sold a record 200,973 vehicles last month
Today I posted by one-hundred-ninety-fourth YouTube video: China Retaliates, Act 2 of the U.S./China trade war. The National Congress of the Chinese Communist Party has rubber-stamped a third term as president for Xi Jinping–a move that required amending the Chinese constitution. Because of his age, this is likely his last term–a legacy term. Legacy terms can be dangerous in states dominated by Great Leaders because these leaders are looking to make big moves and lasting changes to secure their place in history. During this “transition,” there has been a delay in China’s response to U.S. trade restrictions, but that’s likely to change now and I expect a very strong response from the Chinese government. In the next few weeks, we can expect to see retaliation in the technology sector: rare earth minerals and refined lithium. China controls 90% of the world’s rare earth supply as well as processing for that supply. Restrictions on the exports of that material to the U.S. have been very effective in the past and extremely damaging to US technology companies. The second move, I think, will be market moves to restrict access by U.S. companies to the Chinese economy. Companies like Tesla and Apple and other big U.S. actors in China can expect harsh restrictions. The third one is a real wildcard: what happens with Taiwan? Xi’s recent speech to the National Congress was very aggressive about the Chinese government’s claim that Taiwan needs to be quickly reintegrated into China. Xi has a somewhat similar problem as that of Vladimir Putin: he has created an extreme hardcore right wing, which is putting pressure on him to be more aggressive. So, he’s going to make a move and however he moves, it will rattle the financial markets. That’s the Chinese agenda for the next four weeks or so and it makes me very hesitant about putting money into technology stocks. Additionally, look to cut risk in Apple, Tesla, and Taiwan Semiconductor Manufacturing.
After climbing 2.60% yesterday, the Standard & Poor’s 500 fell 2.37% today. Same story with the Dow Jones Industrial Average–up 2.83% yesterday, but down 1.34% today. And the NASDAQ Composite–up 2.23% yesterday and down 3.08% today. And the small-cap Russell 2000–up 2.41% yesterday and down 2.66% today.
Today’s topic: what if you haven’t been pessimistic enough now? I’ve been pretty pessimistic for a while now. And I don’t expect that the October 13 bounce really marks the bottom in this Bear Market. The bottom in my opinion won’t come until the end of 2023 or, maybe, 2024. But my worry after the events of the last few days is that I haven’t been pessimistic enough. It looks like the global economy is slowing even more than we expected. The IMF International Monetary Fund came out Monday, October 10 with new lowered projections for global growth of 2.7% in 2023. That’s down from 2.9% back in July, and it’s down from 3.8% in January. We’ve also got a big escalation of the war in Ukraine leading to a worsening global energy crisis due to more extreme sanctions on Russian oil. On top of that, we have a new trade war with China hammering technology stocks. The question is, how do you get ahead of this? I’ve suggested selling Tesla (NASDAQ: TSLA) and ASML Holding (NASDAQ: ASML) on the assumption that China is going to retaliate by hammering U.S. companies that do regular business in China. Two more stocks that I’m looking at selling–or maybe protecting with Put options–are Nvidia (NASDAQ: NVDA) and Apple (NASDAQ: AAPL) as I try to get ahead of what’s going on in China.
Even before the Biden administration launched a new U.S./China trade war by imposing restrictions on U.S. exports of advanced chip technology, Tesla (TSLA) was facing a sales slowdown in China. Now, with what I regard as the near certainty that Tesla will be one of the choice targets in any Chinese retaliation, I think it’s time to sell Tesla and get out of the way of what looks like a truly nasty tit-for-tat war of sanctions and restrictions. Tomorrow, October 12, I’m selling Tesla out of my Volatility Portfolio with a loss of 63.74% since I added it to the portfolio on November 10, 2021, near what would turn out to be the high before the onset of today’s Bear Market for technology stocks.
If you liked the Trump administration’s trade war with China, you’ll love the Biden administration’s new, more dangerous, escalated version. Rather than slapping tariffs on Chinese goods, and inviting retaliatory tariffs by China on American products, the Biden administration war limits the same of advanced semiconductors and chip-making equipment to Chines companies. The action is aimed straight at the heart of China’s efforts to build its own chip industry. And it plays right into a belief, stoked by China’s President Xi Jinping, that China is the victim of a Western plot to prevent the country’s rise to its rightful place in the global order. And the opening blows in this trade war come just as President Xi aims to be installed as China’s newest preeminent leader with a status near that of Mao. I don’t know what the retaliation from China will be, but it is unlikely to stop with a few restrictions on how U.S. companies, such as Tesla (TSLA) and Apple (AAPL) operate in China. The situation is so dangerous because it is so uncertain and so open-ended.
It’s time to move on from relief/enthusiasm/grudging acceptance of the $369 billion in the Inflation Reduction Act for programs designed to speed up the transition to clean energy and to de-carbonize the economy. The surprise–and in many quarters–appreciation that the United States is doing anything–and it’s a big anything–about climate change has led to big rallies in the stocks of electric vehicle charging companies and hydrogen-economy pioneers. For example, EVgo (EVGO), obviously, I think< an electric vehicle charging stock is up 48.14% in the last month as of the close on August 17. Plug Power (PLUG), one of those hydrogen economy pioneers, is up 84,15% in the last month as of the August 17 close.But I think it's time to go from the general amazement stage to an examination of what companies--and stocks--are actually going to be winners because of the Inflation Reduction Act. (And I say that not only because some of these early winners have started to show some weakness--profit taking perhaps. But also I would pay attention to these near-term trends. EVgo, for example, fell to $10.74 a share on August 17 from $12.02 on August 16. That's a 10.6% tumble.) The bill as finally passed is a masterpiece of compromises and add-ons that mean that many of the top line dollars won't wind up where recent headlines have suggested. My take?
