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Tesla was and continues to be a high-conviction stock. Even at a time when retail investor interest in the U.S. has been at net lows, institutional investors and tactical players such as hedge funds, et al, have been quite active in recent weeks in the markets. However, while the markets have been rising, the bulk of the movement was centred on 7 stocks – predominantly Big Tech – along with a few names either in or adjacent to the ongoing “AI Bubble”. There is some evidence of a sector rotation being attempted, but conviction hasn’t been strong enough to indicate there being a consensus on market recovery. The reason being is that macro indicators do not indicate an easing of the affordability crisis among the American consumer.
A key element of the Big Tech cluster – and often implied as being in the “AI Bubble” as well – is, of course, Tesla. All matters considered, the company has an uphill battle if America (its primary market by a wide margin) is in the midst of a spending downturn. However, as of June 8, the stock is up over 117% in the Year Till Date (YTD).
Overall, vehicle inventories in the U.S. have been plunging as manufacturers pull back on production to match vehicle/model demand.
On the other hand, Tesla’s total vehicle inventory has been edging upwards since the last week of May.
While this is nowhere close to the highs seen in January, this could be the beginning of a long-term trend that is entirely expected, given the affordability crisis. However, a breakdown of inventories by model reveals a very interesting trend.
While the inventories of the Model S and Model Y – which retail for around $90,000 and $52,000 respectively, have been low – the inventory of the Model X (which retails for around $100,000) has been showing a net decrease in recent times while that of the company’s cheapest model (Model 3; $40,000) has been piling up. This is a stark reminder of the affordability crisis: even the middle class is beginning to prioritize necessary purchase ever more now. A slew of articles penned over the past couple of days tout the fact that, with tax benefits, the price of a Tesla Model 3 is cheaper than a Toyota Camry. Such proclamations are rather interesting for two reasons. Firstly, several ardent “EV watchers” has long been touted that buying an electric car is an investment into technological innovation. Equating this to a decades-long stable of a popular Internal Combustion Engine-driven car indicates that this distinction has steadily been erased: an Electric Vehicle (EV) is de rigueur, not an innovation. Second, such a proclamation misses the point entirely that new car sales have been in decline in the U.S. for over a decade now.
Tesla has been held aloft predominantly by the spending habits of higher-income population segments who are (at least currently) more inured to the effects of the affordability crisis than the middle class or the working class segments. However, these segments are also extremely well-catered to a host of luxury carmakers – nearly all of whom offer EV options now.
As of the 8th of June, the Price to Earnings (PE) Ratio and the Price to Sales (PS) Ratio of major carmakers also indicate a number of dysfunctions:
While Ford and General Motors straddle either side of the Domestic Automotive Industry average for the PE Ratio, they fall far below the average in the PS Ratio. This is propped up by the PS Ratio of pure play EV carmakers such as Rivian, Lucid and Tesla. However, unlike Lucid and Rivian, Tesla’s PE Ratio is almost 7X that of the average while the other EV carmakers trend negative.
In contrast, German carmakers Volkswagen, Mercedes-Benz and BMW show a very strong relationship to both ratios relative to the Foreign Automotive Industry averages. In fact, even when considering Japanese carmakers Toyota and Honda as well as Chinese carmakers Geely and BYD, the relationship between their PS Ratios with the industry average remains quite reasonable. When considering PE Ratios, however, the Chinese carmakers are significantly more overvalued than the Japanese and both are significantly more overvalued than the Europeans.
Japanese carmakers tend to have a much stronger footprint in Emerging Markets (EM) economies, where the middle class is resilient and rising and a possibly-significant attribution for these stocks’ high PE valuation. The Chinese carmakers, on the other hand, benefit from strong investor interest in their stocks from overseas buyers – who often consider buying Chinese stocks to be sufficient for “diversification” purposes. While Chinese consumption has, of course, been on an upward trend, signs of strains are becoming increasingly apparent in Q2. Whether this continues or if the Chinese government steps in with sops to props up consumption is a matter of conjecture at the moment but is likely to happen.
On the matter of Tesla’s stock performance, it bears noting that the Put-Call Ratio on the stock in the US markets (as of June 8) also puts forth some rather interesting perspectives.
While the 10-day Put-Call Ratio is showing rather strong and persistent equivocation in the trajectory of the stock throughout June, the 30-day Ratio is showing a very strong (albeit somewhat relaxed) belief that stock will tumble soon.
While long-term professional investors exhibit an abundance of caution, media coverage seems to have had the opposite effect on the retail investor: the American Association of Individual Investors’ weekly Sentiment Survey, whose results were published on June 8, indicates that 44.5% of survey respondents are now bullish on the markets with 31.2% remaining neutral. The current percentage on “neutral” is close to the historical average while the bullish sentiment is nearly 7%. While Tesla is certainly slightly better-positioned than other U.S. EV carmakers, no stock can exist in a vacuum. The “Big Tech” and “AI” Bubbles will pop; the only question is when.
It pays to stay hedged. Investors beware. Sophisticated investors looking to make a play on the stock while retaining their current holdings can consider the TS3S for a 3X leveraged position on the stock’s downside while TS2S offers the same with 2X leverage.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
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