Should You Buy Tesla Stock Before or After Q1 Earnings?

Tesla Inc.’s TSLA upcoming first-quarter earnings will provide important insights into the company’s vehicle performance, innovations and CEO Elon Musk’s political activities. The earnings report is crucial as investors are divided over Tesla’s near-term growth projections based on recent sales and stock performance, with many reassessing their trading strategies. So, is now a good time to buy Tesla stock, or should we wait for things to settle? Let’s delve in – 

Why It’s Hard to Be Bullish on Tesla Stock Pre-Q1 Earnings 

Musk’s relationship with President Donald Trump boosted Tesla shares post-election, leading to speculation that he could sway Trump on self-driving vehicle policies. However, Musk’s bonhomie with the President backfired when Trump’s tariffs displeased Tesla fans, leading to volatile price swings from $251.44 to $479.86 in December before dropping to $227.5 in April. 

Tesla Closing Price by Day

Image Source: Yahoo! Finance

Trump’s tariffs, in particular, irked Chinese electric vehicle (EV) buyers, potentially affecting Tesla’s performance as China is its second-largest market after the United States. Tesla registered $20.9 billion in sales last year, almost 21% of its total revenues, yet faces tough competition from China’s growing EV giant, BYD.

Musk’s political engagement and critiques of federal spending sparked protests and vandalism in Tesla showrooms, hurting the company’s brand and global sales. Tesla’s deliveries were impacted in the January-March period. The company produced 362,000 vehicles but fell short of Wall Street’s estimate by shipping only 336,681 units in the first quarter.  

Image Source: Tesla's Investor Relations Website

Delaying the cheaper new Model Y launch may also affect first-quarter sales as economic conditions worsen and auto loan delinquencies rise, potentially impacting the company’s forthcoming first-quarter earnings results. Dan Ives of Wedbush Securities issued a "code red" warning due to Tesla’s bleak outlook before the earnings report.

Analysts Need Key Information on Tesla Earnings for a Buy 

While the first-quarter results may not appear great, positive management responses could reverse Tesla’s recent value decline since mid-December and boost confidence in the company’s future. First, if Tesla discloses the cost of Trump’s tariffs and the impact is lower than expected, it will increase the company’s stock price.  

Lest we forget, unlike other automakers, Tesla is less affected by Trump’s auto tariffs because it imports fewer cars from the overseas market and uses fewer foreign parts in its U.S.-made vehicles. The company halted new orders for California-made Model S and Model X cars in China due to retaliatory tariffs, potentially benefiting Tesla’s earnings. 

Second, analysts expect management not to resist launching self-driving robotaxis and humanoid robots soon, potentially boosting the company’s value significantly. While no good news in terms of earnings is expected, any announcement about the driverless ride-hailing service launch may boost Tesla’s stock price. Tesla faces tough competition from Uber Technologies, Inc. UBER and Alphabet Inc.’s GOOGL Waymo in driverless taxi service. 

Here’s How to Trade Tesla Stock Now 

The delay in its low-cost model, soft vehicle deliveries, and Musk’s controversial political forays caused a significant drop in Tesla’s share price post-election, possibly affecting first-quarter results. Tesla has an Earnings ESP of -4.93%, a tell-tale sign that the company is not well-positioned to beat in the forthcoming earnings announcement. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Tesla, Inc. Stock Price and EPS Surprise

Tesla, Inc. price-eps-surprise | Tesla, Inc. Quote

To top it off, Tesla’s high valuation, with a forward price-to-earnings (P/E) ratio of 87.09, more than the Automotive - Domestic industry’s 48.1X, poses a risk of a stock crash if growth projections falter. Therefore, investors should exercise caution and refrain from buying Tesla stock before the first quarter outcome.

Image Source: Zacks Investment Research

If Musk is positive about tariffs and self-driving cars during the earnings call and shows an intention to lessen participation in the Department of Government Efficiency, investors may begin buying Tesla shares. But for now, Tesla has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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