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Has the Correction in Tesla ETFs Begun?

Sanghamitra Saha

Tesla’s TSLA epic rally came to a halt on Feb 5 owing to the coronavirus outbreak, giving short-sellers some comfort. Shares slumped 17.2% on Feb 5 as the electric vehicle maker cautioned that coronavirus will affect its China deliveries. Deliveries within China of Tesla's Model 3 vehicle would be delayed for a short period of time due to a prolonged production shutdown.

Tesla's $2-billion (£1.5bn) "gigafactory" in Shanghai is viewed as key part of founder Elon Musk's global growth target. This explains the latest slump in shares. Notably,Tesla's shares have surged 128.6% in the past year, breezing past the S&P 500’s 21.8% (as of Feb 5, 2020).

It clearly performed better than other car makers as Ford F lost 5%, Honda Motors HMC 6.1%, General Motors GM 10.9% while Toyota Motor TM gained only 14.8%. Such massive gains by Tesla make it a potential candidate for correction (read: Ride on Tesla's Hottest Run With These ETFs).

Why Tesla Skyrocketed

Issues like production delays and heavy financial losses are really a matter of the past for Tesla. The company delivered approximately 367,500 vehicles last year, marking a jump of 50%  from 2018. The delivery count was within the company’s guidance but higher than Wall Street estimates. 

In late January 2020, Tesla’s adjusted earnings per share came in at $2.14, well above the Zacks Consensus Estimate of $1.62 and better than the year-ago $1.93. Revenues inched up 2% year over year to $7.38 billion and edged past the Zacks Consensus Estimate of $7.04 billion.

At the time of the earnings release, the electric carmaker said the Shanghai plant has reached a production rate of 1,000 units per week. It also initiated production of the new Model Y, an electric crossover utility vehicle, this month and plans to deliver the first model by the end of March, ahead of schedule (read: ETFs to Soar as Tesla Beats on Q4 Earnings, Shares Spike). 

What Caused the Slump?

Tesla's Shanghai factory is a vital part of its plans to produce more than 500,000 cars this year.Against this backdrop, the rapid spread of coronavirus in China has obviously dealt a blow to Tesla’s plans. The company now intends to restart production on Feb 10, according to a social media post on Weibo from Tesla Vice President Tao Lin.

ETFs That Were Impacted

Tesla has considerable exposure (around 10%) to ARK Autonomous Technology & Robotics ETF ARKQ, ARK Innovation ETFARKK, ARK Next Generation Internet ETF ARKW and VanEck Vectors Low Carbon Energy ETF SMOG and MicroSectors FANG+ ETN FNGS. The funds lost 1.3%, 1.4%, 3.3%, 1.5% and 3.4%, respectively, on Feb 5.

What Lies for the Long Term?

The long-term outlook is bright for the stock. Investors, who failed to join the Tesla rally before, may consider the latest slump as an entry point. Note that Tesla’s earnings estimates for the upcoming quarter have been raised by three analysts in the past seven days while none lowered it.

So, the coronavirus scare and exorbitant valuation could cause a momentary slump though the long-term prospects seem bright. Apart from the upbeat electric vehicles business, there is huge demand from the solar panel industry too, which will benefit Tesla. Tesla has a Zacks Rank #3 (Hold). 

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General Motors Company (GM) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
Ford Motor Company (F) : Free Stock Analysis Report
 
Honda Motor Co., Ltd. (HMC) : Free Stock Analysis Report
 
Toyota Motor Corporation (TM) : Free Stock Analysis Report
 
ARK Innovation ETF (ARKK): ETF Research Reports
 
ARK Autonomous Technology & Robotics ETF (ARKQ): ETF Research Reports
 
ARK Next Generation Internet ETF (ARKW): ETF Research Reports
 
MICRS-FANG+ (FNGS): ETF Research Reports
 
VanEck Vectors Low Carbon Energy ETF (SMOG): ETF Research Reports
 
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