Why Tesla Stock Rarely Stays Down After Earnings

One minute Tesla is tumbling after the poor earnings, and the next minute it is soaring back in a manner as if the previous period had never existed. But here’s the thing, this is not chaos, rather it is repetition of history. Tesla has a strange tradition of making a comeback after its poor performances, so it is not so much a car stock and more of a comeback specialist. This stunt has been seen before by investors and yet, they somehow continue to fall for this.

Following Tesla’s wobbly earnings report that indicated operating profit dropping 40% year over year to $1.6 billion, the stock was expected to decline further. Instead, Tesla did what Tesla tends to do, it turned things around. Shares crawled back back from initial losses to close higher by 2.3% at $448.98 on Thursday, even as it fell to a low of $413.90. On Friday morning, the shares dipped by 1.3% to $443.38, with the S&P 500 and Dow Jones Industrial Average rose moderately.

An Examination of Tesla’s Post-Earnings Trend

In the last three years, Tesla’s post-earnings action has followed a pattern that savvy investors have come to expect. Generally, the stock of the company bounces around 9% after earnings, with results split half in gains and half in losses. But the next day following that initial reaction is a different story, as Tesla stock increased 10 out of 12 times.

Also, the second-day move is usually less unstable, with an average of 3% increase or loss. This is quite less severe than the initial post-earnings turmoil. This trend suggests that the market prefers to reevaluate Tesla more positively after the emotional reflex passes and the fundamentals or long-term strategy come back into focus.

Investors Believe in Tesla

There weren’t many surprises in Tesla’s latest financial results. Tesla’s robotaxi plans and the imminent termination of the $7,500 federal EV tax credit had already been included in the forecast. Analyst Dan Levy from Barclays was very clear that the investors are not much worried about the short-term problems, instead they are already thinking of the big robots, AI-driven transportation, and energy innovation as their way back. 

Even though Tesla has not yet got any significant revenue from its robot and autonomous driving sectors, these projects are still seen as future generators of revenue and innovation.

The investors are treating them as an option for long-term innovation, which will probably be very costly, but still full of promise. By the end of Thursday trading, Tesla stocks had increased 11% year to date and an incredible 72% over the last 12 months. 

For a company in a situation where it has to deal with increasing competition, production costs and regulatory pressure, that’s a clear indication of one thing that the market’s trust is in Tesla’s long-term strategy.

Temporary Uproar

From a broader point of view, a one-time post earnings dip doesn’t depict Tesla’s tale, it just adds another twist to an already very fascinating story. The stock’s ability to recover after poor quarters shows that the investors truly believe in the company’s innovation even if the profit margins are getting tighter and the external factors are still strong against the company.

Tesla has ceased to be merely a car manufacturer, instead it has already set up an entire ecosystem of the next-generation technologies that include self-driving cars and humanoid robots. The investors are aware of this fact, and that’s the reason they keep latching onto their holdings even when the released numbers are less than the forecasts. The short-term market might experience trembling, but the past trends point to the fact that Tesla’s stock hardly ever stays down for a long time.

Bottom Line

The firm itself has perfected the art of converting volatility into momentum, and that’s why its devoted investors are hanging in there, not for the security of stability, but for the excitement of believing in a future that is still in the making. 

Tesla’s unpredictable behavior might make some investors shy away, but for the fearless ones it serves as a reminder that it is the conviction and not the reaction that ultimately leads to long-term profits. In the matter of Tesla, patience has by far been the most rewarding trade throughout history.