Tesla’s Stock Shrugs Off Downgrade: Here’s Why

Tesla’s stock (TSLA -0.20%) displayed resilience in early trading on Friday despite another downgrade from analysts. By the end of the trading day, the shares had barely moved, and there are several reasons for this stability.

Early Trading and Market Performance

Shares of the electric vehicle manufacturer rose more than 2% in premarket trading on Friday. However, they ended the day down 0.2%, just under $220 per-share. In contrast, the S&P 500 (SPX 1.11%) and the Dow Jones Industrial Average (DJIA 1.64%) saw gains of 1.1% and 1.6%, respectively. At this level, Tesla shares remain roughly $25, or 10%, below their price before the company reported weaker-than-expected second-quarter results.

Impact of Disappointing Earnings

Tesla’s stock dropped 12% following the announcement of earnings per-share of 52 cents, falling short of Wall Street’s expectations of 61 cents, according to FactSet. This disappointing performance led to several price-target cuts and analyst downgrades. On Friday, Phillip Securities analyst Jonathan Woo downgraded Tesla from “Reduce” to “Sell” and lowered his price target from $145 to $135. Despite this downgrade, the stock showed minimal reaction, reflecting investors’ adjusted expectations.

Reasons for Limited Stock Reaction

The minimal reaction to Woo’s downgrade can be attributed to several factors. Firstly, the downgrade echoed concerns that had already impacted the stock earlier in the week. Woo cited issues such as pricing pressures, tariffs, and profit-margin concerns. “Management spent almost no time dispelling concerns over its stalling auto business,” Woo noted. These issues, while significant, were already factored into the stock’s drop on Wednesday.

Moreover, Tesla shares have recovered about $5 from their post-earnings lows because, despite the lackluster quarter, it wasn’t entirely negative. There were some mitigating factors, such as a larger-than-expected restructuring charge for employee layoffs and better-than-expected regulatory credit sales. Tesla sells these credits because the company produces more zero-emission vehicles than required. These factors brought the quarter’s results closer to analyst expectations.

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Technical Support and Future Prospects

Technical factors also played a role in stabilizing Tesla’s stock. Stock-market technicians analyze charts to understand historical buying and selling levels. Frank Cappelleri, founder of Capp Thesis, predicted that Tesla’s shares might hover around $225 following a weak earnings report. The stock did indeed stabilize around this level for much of the past two days.

While no particular support level is inherently magical, $225 appears reasonable for Tesla’s stock given the anticipation surrounding future events. One significant event on the horizon is Tesla’s “Robotaxi Day,” now scheduled for October 10. Investors are eager to learn about the company’s progress toward launching self-driving taxis and plans for monetizing autonomous-driving technology.

Optimism for Autonomous Driving

Robotaxis and self-driving cars are crucial for Tesla investors. From April lows to second-quarter earnings, Tesla’s stock added approximately $300 billion in market value, driven largely by optimism surrounding self-driving operations. The recent quarterly report did not significantly alter the outlook for Tesla’s robotaxi initiative, maintaining investor interest and confidence in the company’s future prospects.

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