Should One Invest in Buying or Selling Tesla Shares Prior to Its Upcoming Profit Report?
Tesla, the electric vehicle (EV) giant with a market capitalization of $946 billion, is set to announce its earnings for the second quarter of 2025 on July 23rd. Over the past five years, the company has demonstrated a historical probability of having a positive one-day post-earnings return, with approximately 60% of the earnings data points resulting in positive returns. However, a closer look at the last three years reveals a slightly lower likelihood of a positive return, dropping to 50%.
The correlation between short-term and medium-term returns post-earnings is an essential factor to consider when analysing Tesla's performance. A relatively lower-risk strategy is to examine this relationship, which could offer valuable insights into the company's future trajectory.
In the second quarter of 2025, Tesla delivered 384,122 vehicles, marking a 13.5% decrease from the same period the previous year. Despite the decline in vehicle deliveries, the company has reported impressive financial results over the past twelve months. Tesla's revenue reached $96 billion, with operating profits of $7.1 billion and net income of $6.4 billion.
However, the company's gross margins have taken a hit, with a 16.3% margin in Q1, down from 17.4% the year before. This decrease in margins could be a concern for investors, particularly as competition from Chinese manufacturers is rapidly narrowing the technology and price differential.
Consensus estimates show a 15% drop in earnings compared to the previous year, with earnings per share expected to be around $0.44. Revenues are anticipated to decrease by 11% to $22.7 billion.
Demand for EVs is weakening in the U.S., which could impact Tesla's earnings. Despite this, the Trefis RV strategy, a data-driven approach to investing, has outperformed its all-cap stocks benchmark, producing solid returns for investors.
When examining the data from the last five years, it's interesting to note that 12 of the 20 earnings data points resulted in positive one-day returns, with a median return of 4.2%. Conversely, 8 of the data points resulted in negative one-day returns, with a median return of -6.1%.
As Tesla prepares to announce its earnings, investors will be closely watching the company's performance and the potential impact of increasing competition and weakening demand on its financial results. The company's historical probability of a positive one-day post-earnings return offers some optimism, but the recent decrease in positive returns over the last three years suggests a more cautious approach may be warranted.
In the realm of finance and investing, the upcoming earnings announcement by Tesla on July 23rd carries significant weight, particularly when considering the company's history of positive one-day post-earnings returns. However, as technology giants like Tesla face intensifying competition and potentially weakening demand for electric vehicles, a cautious investing strategy appears prudent when analyzing Tesla's stock.
