What happened
Shares of Tesla (TSLA 1.85%) were rising again today, up 9.6% on Friday as of 1:24 p.m. EST.
Although the electric vehicle (EV) leader reported earnings after the bell on Wednesday, it appears investors weren't content with yesterday's big gains. The stock continued its upward momentum following CEO Elon Musk's positive commentary on January orders and rosy projections for production in the year ahead.
Many analysts also upgraded the stock post-earnings, and another longtime Tesla bull reiterated his "buy" rating on Friday.
In addition, virtually all EV stocks rose in sympathy with Lucid Motors (LCID 5.88%), which surged nearly 100% at one point on speculation that the Saudi Arabia Public Investment Fund might take over the remaining part of the company it does not already own.
So what
At first, one might not have thought Tesla's fourth-quarter earnings results would have caused such a move in the stock. Revenue was up 37.2%, which was only in line with expectations. Adjusted (non-GAAP) earnings per share of $1.19 did beat expectations by $0.08, however.
Still, given Elon Musk's tumultuous Q4 takeover of Twitter and hefty price cuts reported at the end of December, it was really all about forward guidance and reassuring investors on demand. On the call with analysts, Musk said that the December price cuts were due to a combination of falling supply chain and logistics costs, as well as an attempt to qualify for new tax incentives under the Inflation Reduction Act -- not demand concerns. Of note, there are actually price caps in the IRA incentives, so Tesla's price cuts may have actually qualified it for incentives, whereas they might not have qualified before at the prior, higher-average selling prices.
Furthermore, Musk noted that the price cuts had sparked demand, with January orders now double Tesla's rate of production. Of note, Musk thinks Tesla can produce around two million vehicles this year, above the company's "conservative" forecast for 1.8 million. For reference, Tesla did just over 1.3 million deliveries in 2022.
The better-than-feared commentary combined with Tesla's beaten-down share price caused a rally in the stock as well as a slew of analyst upgrades yesterday. Then today, Tesla bull Bill Selesky of Argus Research maintained his "buy" rating on the stock, albeit while lowering his price target to $257 from $374. Still, that amounts to a sizable increase over the current share price of $176.
Also today, fellow luxury EV maker Lucid Motors skyrocketed nearly 100% at one point as rumors circulated that the Saudi Arabia Public Investment Fund might offer to purchase the remaining 38% of the company it doesn't already own.
That vote of confidence in the would-be Tesla challenger put a halo around virtually all EV stocks today, Tesla included.
Image source: Tesla.
Now what
It has certainly been an eventful month for Tesla, which saw its stock crater in December and then rebound in a big way in January. Currently, shares go for 43 times trailing non-GAAP earnings per share (EPS) and 73 times trailing free cash flow.
Whether or not Tesla can continue its recent run depends on a few things that will affect growth in 2023. First, the health of the global economy and whether we will see a recession or not, and if so, how bad it will be. Second, investors should monitor how consumers feel about the Tesla brand, as Elon Musk has become increasingly vocal and polarizing in his political commentary since acquiring Twitter in October. Third, investors should monitor if the incentives from last year's Inflation Reduction Act spur lots of incremental demand for EVs in 2023, as the incentives just kicked in on January 1.
It's an exciting time for the dynamic EV industry, with lots of crosscurrents for investors to analyze. For those looking to invest in these stocks, which were beaten down in 2022 but are off to the races again in 2023, make sure you have a grasp of all these crosscurrents and a firm outlook on future growth and profitability when making your investment decisions.
