Tesla’s 70% Rally Faces Key Test With Musk’s Latest Master Plan

(Bloomberg) – Stock markets’ renewed enthusiasm for Tesla Inc. faces a test on Wednesday, when Elon Musk unveils his latest and much-touted “master plan” for the electric-vehicle maker.

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Expectations have risen steadily in the run-up to the event, with several Wall Street analysts becoming more bullish on the stock, sending the share of buy recommendations for Tesla to its highest level in over a decade. But after a 70% surge in just two months, further gains could require more fireworks than the chief executive officer anticipates.

“Given the year-to-date upleg for the stock, we believe the bar has been raised for Investor Day – potentially setting the event up for a ‘sell the news’ reaction,” Barclays analyst Dan Levy wrote in a note Monday. However, Levy, who has the equivalent of a buy rating on the stock, expects the event to “bolster the long-term opportunity for Tesla.”

Tesla shares have taken investors on a dizzying ride over the past 18 months. They plummeted last year as rising interest rates hit growth stocks, reducing the company’s market cap to less than $350 billion from once more than $1 trillion by early January.

Since then, however, the stock has seen a major turnaround as investor appetite for growth stocks has recovered and there are signs that demand for Tesla’s cars is improving. That view was supported by the electric-vehicle maker’s better-than-expected fourth-quarter results and a move by President Joe Biden’s administration to expand EV tax credits. Tesla is now closing in on the market cap of Berkshire Hathaway Inc., and if it does, it would be the fifth most valuable company in the United States.

All of these factors boosted analysts’ optimism on the stock. Of the 48 analysts covering Tesla, 30 now recommend buying it, the largest stock since October 2012.

During Wednesday’s scheduled release of Musk’s third so-called master plan (the others were in 2006 and 2016), analysts are expecting updates on the company’s battery technology, details on its manufacturing capacity, and most importantly, the announcement of a cheaper vehicle. Musk tweeted in early February that the March 1 event would be about “the journey towards a fully sustainable energy future for the planet.”

Intraday volatility is almost a given as options traders are active in Tesla contracts, specifically call options betting on stock gains. Earlier this month, the volume of such calls hit the highest level since April 2022 on a rolling 20-day basis, data compiled by Bloomberg shows.

Still, the stock’s breakneck run, coupled with rising expectations, could limit further gains, at least in the near term.

That’s partly because the stock is priced back up as it trades at about 52 times forward earnings, according to data from Bloomberg, compared to 23 times the Nasdaq 100 Index and 29 times the NYSE FANG+ Index. Technicals are also showing some red signals: Despite a recent pause in the rally, Tesla shares are still trading near technically overbought territory, suggesting that any strong gains are likely to face resistance.

“While analyst day is likely to provide some incremental details on the next-generation vehicle platform,” wrote Toni Sacconaghi, analyst at Sanford C. Bernstein, “it’s unclear whether Tesla will be able to adequately address our timing concerns.” ”

–Assisted by Elena Popina and Subrat Patnaik.

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