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Tesla’s Steepest Drop Since 2020 – Trading Opportunity?

February 08, 2024
A navy blue Tesla crashed on a rainy highway

Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.

Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. An investor could lose the full principal value of his or her investment in a single day. Investing in the Funds is not equivalent to investing directly in TSLA.

Important Notice to Investors: Effective April 2, 2024, Direxion will increase exposure and risk from 1.5X to 2X on Single Stock Daily Leveraged Bull ETFs. Read the Press Release.

Shares of Tesla, Inc. (TSLA) suffered a massive drop after their most recent earnings report. Not only did the company’s results come in below estimates, but the guidance they issued pointed to vehicle volume being notably lower compared to the previous year. Does this threaten their status as a renowned member of the Magnificent Seven? Or is this a dip-buying opportunity?

Biggest Price Drop Since 2020 – More Trouble Ahead?

Woes are mounting for the electric vehicle (EV) automaker following their lackluster earnings reports. Despite delivering 1.8 million cars last year, Tesla continues to cut prices for vehicles across the world. Price cuts coupled with slowing demand for vehicles is a recipe for lower revenue, and ultimately, lower earnings in the foreseeable future.

Although Tesla was a major innovator in the electrical vehicle space, it’s facing increased competition from Chinese automakers and other legacy automotive companies in the U.S. This phenomenon is cutting into what was previously a market that Tesla dominated.

Traders that think Tesla’s woes are only going to increase may be interested in Direxion’s Daily TSLA Bear 1X Shares (Ticker: TSLS), which seeks daily investment results, before fees and expenses, of the inverse performance of Tesla common stock.

Below is a daily chart of TSLA as of January 25, 2024.

Daily chart of TSLA as of 1/25/2024

Source: TradingView.com

Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.

The performance data quoted represents past performance. Past performance does not guarantee future results.

Are Tesla’s Fears Blown Out of Proportion?

The consensus towards Tesla has now seemingly shifted in favor of the bears. However, it’s important to understand that the automaker is also heavily involved in other areas of technological development like artificial intelligence. If the company hits a major breakthrough, it could be a catalyst for a reversal.

There’s also the consumer economy that has continued to perform above expectations. The preliminary Q4 Gross Domestic Product (GDP)* report saw the economy grow at 3.3% in the fourth quarter, which exceeded estimates of around 2%.

Coupled with the prospect of lower interest rates this year, the consumer could return with a vengeance, and if rates do come down, vehicle affordability may increase. Remember, there is still a major tax credit option for purchasers of electrical vehicles which consumers may take advantage of if their financing options improve in the coming months.

Ultimately, the number and magnitude of rate cuts will be determined by inflation. The next Consumer Price Index (CPI) inflation report is set to be released on February 13. If it comes in lower-than-expected, it could signal rate cuts sooner than later.

Traders that think fears in Tesla are exaggerated near-term may find an opportunity with Direxion’s Daily TSLA Bull 1.5X Shares (Ticker: TSLL), which seeks daily investment results, before fees and expenses, of 150% of the performance of Tesla common stock.

More Individual Stock and Sector Plays

Traders seeking concentrated plays in the equity market may consider Direxion’s other single stock ETFs. These innovative funds provide traders an opportunity to take on leverage in stocks like Apple, Nvidia, Google, and Microsoft.

The Direxion Daily AAPL Bull 1.5X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 150% of the performance of Apple Inc. common stock, while the Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of Apple Inc. common stock.

The Direxion Daily NVDA Bull 1.5X Shares (Ticker: NVDU) seeks daily investment results, before fees and expenses, of 150% of the performance of NVIDIA Corporation common stock, while the Direxion Daily NVDA Bear 1X Shares (Ticker: NVDD) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of NVIDIA Corporation common stock.

The Direxion Daily GOOGL Bull 1.5X Shares (Ticker: GGLL) seeks daily investment results, before fees and expenses, of 150% of the performance of Alphabet Inc. class A shares, while the Direxion Daily GOOGL Bear 1X Shares (Ticker: GGLS) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of Alphabet Inc. class A shares.

The Direxion Daily MSFT Bull 1.5X Shares (Ticker: MSFU) seeks daily investment results, before fees and expenses, of 150% of the performance of Microsoft Corporation common stock, while the Direxion Daily MSFT Bear 1X Shares (Ticker: MSFD) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of Microsoft Corporation common stock.

For those looking to make a sector-based play on electrical vehicles or artificial intelligence, there is the Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (Ticker: EVAV), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx US Electric and Autonomous Vehicles Index* and the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 2X Shares (Ticker: UBOT), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index*.

*Definitions and Index Descriptions

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

The Indxx US Electric and Autonomous Vehicles Index (IUEAVNT) is designed to track the performance of electric and autonomous vehicles companies. The Index Provider defines electric and autonomous vehicles companies as those companies that derive at least 50% of their revenues from the following activities (or “sub-themes”): Manufacturers – companies that manufacture and sell electric or autonomous vehicles; Enablers – companies that build infrastructure or create technology for electric or autonomous vehicles, such as charging docks and batteries; and Software and Technology Services – companies that engage in the development of software and technology for electric or autonomous vehicles.

The Indxx Global Robotics and Artificial Intelligence Thematic Index (IBOTZNT) is designed to provide exposure to exchange-listed companies in developed markets that are expected to benefit from the adoption and utilization of robotics and/or artificial intelligence, including companies involved in developing industrial robots and production systems, automated inventory management, unmanned vehicles, voice/image/text recognition, and medical robots or robotic instruments, as defined by the index provider, Indxx. Companies must have a minimum market capitalization of $100 million and a minimum average daily turnover for the last 6 months greater than, or equal to, $2 million in order to be eligible for inclusion in the Index.

The Funds have derived all disclosures contained in this document regarding Tesla, Inc. from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Tesla, Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Tesla, Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Tesla, Inc. could affect the value of a Fund’s investments with respect to Tesla, Inc. and therefore the value of the Funds.
Tesla Investing Risk — The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.

Tesla, Inc. Risk — The future growth and success of Tesla, Inc. are dependent upon consumers' demand for electric vehicles, and specifically, its vehicles in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles in general and Tesla, Inc. vehicles does not develop as Tesla, Inc. expects, develops more slowly than it expects, or if demand for its vehicles decreases in our markets or our vehicles compete with each other, the business, prospects, financial condition and operating results of Tesla, Inc. may be harmed. Tesla, Inc. may fail to meet its publicly announced guidelines or other expectations about its business, which could cause the price of TSLA to decline significantly.

Automotive Companies Risk — The automotive industry can be highly cyclical, and companies in the industry may suffer periodic operating losses. Automotive companies can be significantly affected by labor relations, fluctuating component prices and supplier disruptions.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation Risk, Tesla, Inc. Investing Risk, Industry Concentration Risk, Market Risk, Indirect Investment Risk, Trading Halt Risk, Cash Transaction Risk, Tax Risk, and risks specific to the consumer discretionary sector, electric and autonomous vehicles companies, and automotive companies. Additional risks include, for the Direxion Daily TSLA Bear 1X Shares, risks related to Shorting. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.

Distributor: Foreside Fund Services, LLC.