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With Cybertruck Delivery Imminent, Tesla Continues on Volatile Path

December 05, 2023
SIlver cybertruck featured on a black background backlit with smoke

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.

In the aftermath of Tesla, Inc.'s (Ticker: TSLA) underwhelming Q3 earnings report, which saw a significant decline in adjusted earnings per share and a dip in revenue due to pricing pressures, the company’s stock experienced a tumultuous ride. Post the earnings call, Tesla shares plummeted by approximately 16%, casting doubts on the sustainability of its market valuation. Nevertheless, despite this setback, TSLA has managed to maintain a staggering 95% year-to-date increase as of November 30, 2023 (Bloomberg). The question remains whether this recent dip is indicative of an overinflated stock or merely a transient obstacle for a company that has consistently outperformed the market over the past decade.

Cybertruck's Arrival as Potential Lifeline for Tesla

The eagerly anticipated Cybertruck is slated for its initial deliveries in just a few days, according to Elon Musk. This highly delayed, all-electric truck could emerge as a pivotal catalyst for Tesla's stock, representing the company’s foray into the profitable pickup truck market.

In the context of Tesla’s historic sales surge that propelled it into the top 10 best-selling vehicles for the first time in 2022, Ford's F-series truck, despite facing its lowest sales in a decade, retained the top spot. This disparity underscores the necessity for Tesla to secure a foothold in the North American market, especially given the dominance of traditional automakers in the truck segment. The Cybertruck’s success or failure holds potentially significant implications for Tesla’s competitive standing.

Despite a series of design issues and production delays that postponed the Cybertruck’s launch until now, a pre-production demonstration earlier this year offered a glimpse of its functionalities. Musk, however, conceded that the distinctive design presents challenges in scaling manufacturing.

Anticipated Market Reactions and Long-Term Prospects

As the Cybertruck’s release date looms closer, market analysts anticipate heightened volatility. Optimists are likely to bolster Tesla’s stock, anticipating a successful launch, while pessimists might short it, speculating on potential delays or manufacturing obstacles.

Beyond the immediate uncertainty, a bullish case for Tesla’s long-term prospects persists. Despite a drop in Tesla’s electric vehicle (EV) market share, the company still commands a significant portion, and the overall electric vehicle market continues to expand rapidly. Tesla’s aggressive pricing strategy, though impacting short-term margins, could help regain lost market shares as the EV market grows.

Moreover, Tesla's strides in energy storage, charging infrastructure, and partnerships for standardizing charging plugs across major automakers hint at attempted diversification beyond vehicle sales. Recent collaborations with Toyota, Hyundai, Kia, and BMW in adopting Tesla's charging plug emphasize the potential of Tesla's infrastructure business.

Implications for Traders and Direxion's TSLA Bull and Bear ETFs

With the looming uncertainty surrounding Tesla’s stock, traders eyeing potential gains or hedging against volatility may choose to explore Direxion’s Daily TSLA Bull 1.5X Shares (Ticker: TSLL) and Daily TSLA Bear 1X Shares (Ticker: TSLS). These Single Stock Leveraged & Inverse ETFs seek daily investment results, before fees and expenses, of 150% and 100% of the inverse (or opposite), respectively, of the performance of the common shares of Tesla, Inc.

It’s crucial to note that these single stock ETFs carry inherent risks and are designed for short-term trades, making prudent and careful use imperative, especially given the heightened volatility surrounding Tesla.

Conclusion

As Tesla navigates through the pivotal phase of the Cybertruck’s launch and contends with market fluctuations, its fate hinges on not just immediate delivery success but also long-term sustainability and diversification efforts. But for traders, the days and weeks following the Cybertruck's debut could see the most potential for opportunity – along with the most risk.

*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 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.

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