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Tesla (TSLA -2.76%) shares have dropped for six consecutive days and 13 out of the last 14 trading sessions. The stock looks as if it may reverse course today, however. As of 11:30 a.m. ET, Tesla shares have jumped 4.8% to start the week.
Even with today’s gains, the recent slide in the stock has resulted in a nearly 14% loss in market value for the electric vehicle leader this month.
Tesla stock has been under pressure as the Chinese economy seems to continue to struggle and analysts cut China’s growth targets. Tesla’s biggest production plant is its Shanghai facility. And competition in China also continues to grow. Tesla has resorted to multiple price cuts to defend its market share there. But investors fear those cuts will result in lower profit margins even as the company grows sales volumes. Last week Tesla cut as much as $10,000 off some Model S and Model X vehicles in China to help spur sales.
Yet the stock is rebounding today after one Wall Street analyst cited several potential catalysts ahead for Tesla. Baird analyst Ben Kallo put Tesla on his firm’s “best ideas” list.
Kallo acknowledges that the price cuts will continue to hurt profit margins, but he believes other items will gain investors’ attention. In his note shared by Barron’s, Kallo said those catalysts include “Cybertruck launch, a wider-scale adoption of FSD [Full-Self-Driving Software], continued growth in the Energy business, expanding into new markets, and a possible AI Day.”
As those growth areas play out, investors will watch to see what happens to Tesla’s top and bottom lines. Even if its profit margin stagnates or sinks, significant growth in revenue will lead to expanding earnings, and that’s what investors in Tesla ultimately want to see.
Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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