Why Tesla Stock Surged 16% This Week

Tesla stock (NASDAQ:TSLA) has been all over the place in the last year, bottoming out before rising after first-quarter earnings brought needed news.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published April 25, 2024 8:00 pm EDT

Investors thought Tesla (NASDAQ:TSLA) would’t catch a break this week. The electric vehicle (EV) maker continued to drop lower and lower in share price as earnings crept closer. However, after earnings were reported, Tesla stock instead surged upwards by 16% on Wednesday.

Car, EV, electric vehicle — Image source: Getty Images

What happened

First quarter results actually missed out on analyst estimates, both in terms of its top and bottom line growth. While Wall Street expected US$0.52 in adjusted earnings per share (EPS), Tesla stock instead reported US$0.45.

Furthermore, revenue came in at US$21.3 billion, falling below the estimate of US$22.3 billion, as did operating income, reporting US$1.2 billion below the US$1.5 billion expected.

So why on earth did the company see a rise in sales, revenue, and pretty much anything of importance below estimates?

Affordability

The biggest improvement was that Tesla stock announced the company would be accelerating its plan to launch new models. And this would include more affordable ones. Furthermore, the company is currently developing its next-generation platform. This would add to its next wave of growth, “initiated by advances in autonomy and introduction of new products, including those built on our next generation vehicle platform.”

The new vehicles would include more affordable ones, utilizing aspects of its next generation platform to produce the new models. The new line is expected in early 2025, “if not late this year,” said CEO Elon Musk in a call with analysts.

Even more excitement was underway, as Musk announced the company would also be demonstrating its robotaxi, dubbed “cybercab,” this coming summer. And by this time, a low-cost vehicle will be discussed more as well.

Needs to be done

Tesla stock has dropped further and further as competition has risen for EVs this year. China, in particular, the largest consumer and producer of EVs, is producing cheaper models. This has caused Musk to need to play catch up. The chief executive has therefore been forced to see sales drop, while also reducing prices at the same time.

The hope is more affordable options will ramp up sales once more, perhaps leading to another surge in interest in EVs once again. Something we saw in years past. But for now, it’s a game of wait and see.

Even so, Musk remains at the forefront with Tesla known for its innovation. In this case, Musk believes the future is not only electric, “but also autonomous.”

In this sense, the company won’t only be scaling out its EVs, but also its artificial intelligence (AI) infrastructure in the next few months. This includes spending US$1 billion in AI infrastructure during the last quarter.

Bottom line

So is Tesla stock due to rise? While there is a lot of excitement surrounding these cheaper vehicles, and of course further innovation, I would take a wait-and-see approach. The company has seen its share price fall dramatically this year, down 54% from peak to trough. And while this looks like another strong pace that could mean positive momentum, I would wait to see actual sales before jumping back in.