What happened
Shares of EV leader Tesla (TSLA 15.31%) rose on Wednesday, with the stock up 6% as of 3:51 p.m. ET.
The curious thing is that there wasn't much company-specific news for Tesla today. In fact, on Monday, the company reported third-quarter deliveries that were below those of the second quarter, which the company attributed to factory upgrades.
But on Wednesday, it appears strong auto sales data from September, along with strong deliveries from a key EV rival, were enough to convince investors that Tesla's weak deliveries were in fact due to the upgrades, and not waning demand.
In addition, the fact that long-term bond yields stopped going up for the first time in days led to a "relief" rally in many technology growth stocks.
So what
On Monday, Tesla reported it delivered just over 435,000 vehicles in the third quarter, which was over 20,000 below Wall Street estimates and about 6% below deliveries in the second quarter. In the press release, Tesla chalked up the decline in deliveries to "planned downtimes for factory upgrades," while leaving its full-year delivery estimate of 1.8 million cars unchanged. Tesla's share price had already retreated, and its short interest had crept up leading into the deliveries release, so today's move may be due to a short-covering rally.
But Tesla's stock was actually relatively muted Monday and Tuesday after the report, before today's spike. So, what happened today? Likely, there are two reasons for today's move.
The first is that other auto sales data has come in positively. Tesla's rival Rivian (RIVN 3.76%) is up even more than Tesla today, as investors react favorably to its third-quarter production that actually beat estimates handily. In addition, industry research and analytics firm J.D. Power reported third-quarter U.S. auto sales figures yesterday, noting sales were up 17% relative to the third quarter last year, and actually an acceleration over the first half of 2023, which saw 13% growth. So, for all the fear over rising interest rates and U.S. consumer strength, it appears demand for car sales is still there. The "Big 3" automakers are currently experiencing ongoing worker strikes that could begin to curtail their supply later this quarter. So if overall demand remains strong, it would put other competitors not undergoing strikes, such as Tesla, in a good position.
The second reason obviously has to do with interest rates. Over the course of the past month, long-term Treasury bond yields have continued to march higher. That puts pressure on growth stocks like Tesla, which have the bulk of their earnings power far into the future. However, today the yield on the 10-year Treasury bond is down slightly. While not a big decline, the breaking of the upward momentum in bond yields appears to have led to a relief rally in growth tech stocks like Tesla.
Now what
It remains to be seen if Tesla's weak Q3 deliveries were really a function of factory downtime or a lack of demand, as future delivery reports will confirm or disprove this fact.
Tesla remains a fierce battleground stock, with bulls seeing nothing but profitable growth ahead for the first-mover EV disruptor, while bears cite its high valuation, increasing competition from the likes of Rivian and others, and the potential that EVs may struggle to continue growing at the pace of the last few years.
Of note, The Wall Street Journal did report yesterday that electric vehicles have seen a deceleration in growth and a build in inventory, as the subsector may be running into trouble convincing the general population beyond early adopters to buy an electric vehicle.
At 75 times earnings, Tesla will need to defy the industry slowdown and continue to invent new products and services to justify its current price. But the company has defied skeptics before, so I would expect more volatility for the stock, in both directions.
