Wednesday, July 1, 2020

Tesla Races to New Record, Valuation Crosses $200Bn

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News shaping
the markets today

     

What’s happening: Shares of Tesla Inc climbed as much as 8% to a record intraday level of $1,087.50 on Tuesday.

What happened: The Silicon Valley car maker, which debuted as a publicly traded company on the Nasdaq, surged from its IPO price of $17 to more than $1,000 in a span of just 10 years.

The record closing values Tesla at over $200 billion, making it the world’s second-largest automaker after Japan’s Toyota Motor.

Why it matters: Tesla’s stock started the year at around $430. Initially, markets remained sceptical about the electric vehicle maker’s ability to manufacture enough cars to meet the rising demand and deliver a profit. Tesla silenced the critics by rapidly expanding its factories in California and setting up factories in Buffalo and later in China, and reporting profits for the past few quarters.

Tesla is scheduled to announce its delivery numbers for the second quarter over the next few days and expectations are pinned at as high as 100,000 deliveries. The delivery figure serves as an indication of a carmaker’s sales and is, therefore, a much-anticipated announcement. The company delivered 88,496 units in the first quarter, representing a 40% year-over-year increase, although down 21% versus the prior quarter.

Tesla also surprised investors by reporting a profit for the first quarter despite facing shutdowns in China due to the covid-19 outbreak. Subsequently, the company was forced to pull the shutters on its US factory in April. Tesla was able to resume production at its US manufacturing facility only in May.

Against the backdrop, Tuesday saw heavy trading in Tesla shares after a leaked internal email from CEO Elon Musk suggested that the company may achieve breakeven in the second quarter. This is commendable as the world’s largest carmakers Volkswagen and Toyota and US auto behemoths Ford and GM brace for massive losses.

How shares performed so far: Tesla has been one of the best performing stocks on the Nasdaq this year, with its shares more than doubling in the second quarter and rising by a whopping 158% in the first half of 2020.  The stock has significantly outperformed the Nasdaq, which has added 30.6% in the second quarter and 12.1% in the first half. Tesla’s shares ended the trading day yesterday up 7% to a record $1,079.81.

What to watch: Even as Tesla’s stock reaches another record close, investor sentiment remains bullish as the company gears up to report its delivery number, which serves as a prelude to its second-quarter results. Tesla is also looking to disrupt the traditional energy markets with its solar energy and batteries. The carmaker is expected to launch a new battery in September with the capability of lasting more than 1 million miles.

The Markets Today

     

Crude oil will be in focus today, ahead of the Energy Information Administration’s (EIA) report on crude inventories.

Context: Crude oil futures settled lower on Tuesday as investors focused on the continued rise in covid-19 cases, brushing off strong economic data from China.

Details: WTI (West Texas Intermediate) crude oil prices delivered a strong recovery, rising 92% in the second quarter, but still ended the first half of the year on a downbeat note, losing around 36% during the period.

The total number of confirmed covid-19 cases climbed to 10.3 million globally on Tuesday, with the death toll increasing to 505,518. The persistent rise in the number of cases has raised concerns over the reversal of reopening efforts by various economies, which could dampen the demand for oil again.

Upbeat economic data from China, the biggest importer of oil, did nothing to improve investor sentiment yesterday. The Asian nation saw signs of a recovery, with its official manufacturing PMI (purchasing managers index) surging to 50.9 for June, versus a reading of 50.6 in May. The country’s services PMI also climbed to 54.4 in June, from 53.6 in the previous month.

WTI crude for August dropped 1.1% to end at $39.27 a barrel on the NYMEX. Brent oil for August dropped 1.3% to close at $41.15 a barrel on Tuesday. Global benchmark oil prices have declined by around 38% year to date, but has risen 81% in the second quarter.

August natural gas gained 2.5% to $1.751 per million British thermal units on Tuesday, with prices falling 20% in the second half of the year.

Late Tuesday, the API (American Petroleum Institute) reported that US crude supplies had declined by 8.2 million barrels in the week ending June 26.

What to watch: Investors await the EIA’s data on crude inventories. Analysts expect crude stocks to drop by 2.7 million barrels in the latest week. Gasoline supplies are expected to fall 2.7 million barrels, while distillate inventories are likely to rise 900,000 barrels for the week.

Other Markets: US indices trading closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up 0.85%, 1.54% and 1.87%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UAE’s inflation rate, Germany's retail sales, unemployment rate and manufacturing PMI, UK’s Nationwide House Price Index and manufacturing PMI, Spain’s manufacturing PMI and new car sales, Switzerland’s manufacturing PMI, Italy’s manufacturing PMI, France’s manufacturing PMI and new car registrations, Eurozone’s manufacturing PMI as well as the US MBA mortgage applications, Challenger job cuts, ADP employment change, manufacturing PMI, construction spending, ISM manufacturing PMI and FOMC minutes.