Why Tesla Stock Was Falling This Afternoon

What happened

Shares of Tesla (TSLA -7.55%) were initially trading higher at the market open on Friday before market traders turned their attention back to the economy, which sent most stocks down today. As of 12:42 p.m. ET, the stock was trading down 5.4%, while the Nasdaq Composite was down 2.3%. 

TSLA Chart

Data by YCharts

The sell-off comes after another analyst issued a positive note on Tesla ahead of next week’s third-quarter earnings report.

So what

Wells Fargo analyst Colin Langan believes Tesla will beat third-quarter estimates, with favorable pricing offsetting currency headwinds from a strong U.S. dollar.

Most importantly, the analyst expects Tesla to capitalize on the electric vehicle incentives built into the Inflation Reduction Act. Assuming Tesla maxes out its U.S. capacity, it could save $2.8 billion, according to Langan. 

This follows similar views from a Morgan Stanley analyst last month. That analyst believes the legislation could boost Tesla’s operating profit by over $30 billion per year by 2030. That could put the company on pace to generate $65 billion in earnings before interest and taxes. That level of operating profit is about 10% of Tesla’s current market cap, which is starting to look attractive from a valuation perspective.

Now what

Right now, the market is only concerned with rising inflation and the impact that has on consumers’ spending ability. The latest retail sales data follows a negative inflation report earlier this week. U.S. retail sales were flat in September and below expectations.  

Concerns over the economy will likely cause more volatility, but the Inflation Reduction Act’s incentives make this year’s bear market an interesting time to consider buying electric vehicle stocks.

Tesla’s earnings report next week will be closely watched — not necessarily for the numbers, but for what CEO Elon Musk has to say about the future. For what it’s worth, analysts expect the company to report sales of $22 billion with adjusted earnings per share of $1, up from $0.62 in the year-ago quarter. 

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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