The time has come! Second-quarter earnings reports are about to kick into gear, and as usual, all eyes will be on big tech.
Among mega-cap tech stocks, one of the underperformers so far this year has been Tesla (TSLA -0.05%). Demand trends for electric vehicles (EVs) as well as a murky -- if not enigmatic -- macroeconomic picture have been primary concerns among Tesla skeptics.
However, shares of the EV producer have witnessed something of a renaissance over the last month. Since mid-June, the stock has risen 47% and is now up 5% in 2024.
Let's dig into what could be fueling Tesla's current momentum and assess if now is a good time to scoop up some shares before the company reports earnings on July 23.
Full self-driving will be front and center
At the end of the day, cars are a commoditized product. Companies are essentially forced to compete on price, making it difficult to discern the pros and cons of different vehicles.
When it comes to EVs in particular, Tesla faces its share of challenges. Namely, competition is intense both domestically and abroad. Moreover, many consumers view EVs as more of a luxury purchase, making the value proposition and sales cycle difficult.
Perhaps Tesla's biggest differentiator over the competition is its self-driving technology. Dubbed full self-driving (FSD), Tesla is looking to implement this software across its fleet of EVs in an effort to entice more buyers.
From a technological standpoint, this would be a big upgrade from the current state of Tesla's cars. Furthermore, the economic impact of FSD shouldn't be underappreciated. Given full self-driving is a software product, it represents a high-margin recurring source of revenue, which would help the automaker's cash-flow generation significantly.
Image source: Getty Images.
And what about Aug. 8?
While the prospects of full self-driving are intriguing, I think there could be another subtle reason Tesla stock seems to have garnered some attention lately.
During the company's first-quarter earnings call, CEO Elon Musk alluded to an event in August that will revolve around Tesla's robotaxi, which is the real opportunity with FSD.
Essentially, Musk's vision is to build a large fleet of vehicles capable of autonomous driving. In turn, consumers can call these robotaxis on demand and use them for transportation.
The uses for a service like this are obvious. Delivery services such as DoorDash or Instacart could be big-time beneficiaries of such technology, while ride-hailing apps including Uber and Lyft could also ultimately be better served by becoming customers of Tesla's robotaxis.
Is Tesla stock a good buy right now?
This is not the first time shares have exuded meme stock behavior. Given the sharp rise of the stock in a short period of time, I can say with a high degree of confidence that there are some momentum traders buying in right now.
Following this type of momentum can be dangerous: A stock can go down just as quickly as it went up.
My suspicion is that some investors are scooping up shares of Tesla for two main reasons. The first is that some might be thinking that some sort of big update will be revealed during the July 23 earnings call -- for example, a licensing deal for FSD with another auto manufacturer.
Second, I think many investors are excited about the Aug. 8 robotaxi event and are buying the stock in anticipation.
While I am personally intrigued about both the earnings call and the robotaxi event, unfortunately I don't think it is prudent to buy such a volatile stock hoping that something magical will be revealed.
When it comes to investing in Tesla, I think it's clear by now that you need to be aligned with Musk's vision. Specifically, investors need to view Tesla as an artificial intelligence (AI) company and not just a car business.
At the end of the day, whether second-quarter earnings end up being better than expected or uninspiring, long-term investors will have ample opportunities to buy Tesla stock. The same dynamic can be applied regardless of how the robotaxi event goes in early August.
I think the best option for investors right now is to assess earnings when they are published later this month and listen carefully to see if anything further is revealed about the robotaxi event. If not, I would wait and see how the event goes in August.
Following these two dates, I think investors will have a much clearer picture as to whether or not buying Tesla stock right now makes sense. But at the moment, there's a bit too much optimism fueling the momentum that seems to be disconnected from anything tangible.
