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Tesla Surges on Return to Profitability: ETFs to Ride

Sweta Killa

After the closing bell on Wednesday, Tesla Motors TSLA spread optimism among investors after reporting a surprise profit in the third quarter of 2019. Adjusted earnings per share came in at $1.86 in contrast to the Zacks Consensus Estimate of a loss of 15 cents. In the year-ago, the company had reported earnings of $2.90 per share. However, revenues of $6.30 billion fell short of the Zacks Consensus Estimate of $6.52 billion and also came in lower than the year-ago figure of $6.82 billion.

Earlier in October, Tesla revealed that it had delivered record 97,000 (79,600 Model 3 and 17,400 Model S and X) vehicles, higher than 84,000 vehicles delivered in the year-ago quarter. However, the number fell short of the expectations of analysts polled by FactSet of 99,000. The electric carmaker said that it achieved "record" net orders in the third quarter and is seeing an increase in its order backlog in the current quarter (read: ETFs to Watch as Tesla Misses on Q3 Deliveries).

Overall, Tesla is expected to deliver 360,000-400,000 vehicles in 2019, indicating growth of 45-65% from 2018. It hopes to produce 500,000 vehicles a year globally in the 12-month period ending Jun 30, 2020 and reaffirmed a target of producing 10,000 vehicles per week by the end of 2019. The company also continues to target 25% non-GAAP gross margin on Model S, Model X and Model 3 vehicles.

The electric carmaker said its Shanghai Gigafactory is ahead of schedule with trial production underway. Model Y production is expected to begin by summer 2020.

After delivering a profitable quarter, shares of Tesla increased nearly 21%, crossing $300 for the first time since Mar 1 in aftermarket trading. The stock currently has a Zacks Rank #2 (Buy) and a VGM Score of C, suggesting outperformance in the days ahead though it belongs to a bottom-ranked Zacks industry (bottom 30%).

ETFs to Watch

Investors seeking to tap Tesla return’s to profitability should buy ETFs having substantial allocation to this luxury carmaker. We highlight five of them in detail below.

ARK Innovation ETF ARKK

This is an actively managed fund seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the areas of DNA technologies (Genomic Revolution), industrial innovation in energy, automation and manufacturing (Industrial Innovation), the increased use of shared technology, infrastructure and services (Next Generation Internet), and technologies that make financial services more efficient. In total, the fund holds 39 securities in its basket with Tesla occupying the top position, accounting for 11% share. The product has gathered $1.5 billion in its asset base and trades in a good volume of about 286,000 shares. Expense ratio comes in at 0.75%.

ARK Industrial Innovation ETF ARKQ

This is also an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services as well as technological improvement and advancements in scientific research related to energy, automation and manufacturing, materials and transportation. This approach results in a basket of 36 stocks with TSLA occupying the top spot with 11.8% share. The product has accumulated $149.9 million in its asset base and charges 75 bps in fees per year. It sees lower volume of about 22,000 shares a day.

ARK Web x.0 ETF ARKW

This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 39 stocks in its basket with Tesla occupying the top position at 10%. The ETF has amassed $358.3 million in its asset base and trades in good average daily volume of around 78,000 shares. Expense ratio is 0.75% (read: Trump May Be Re-Elected: Best ETFs in His Current Term).

VanEck Vectors Low Carbon Energy ETF SMOG

This ETF tracks the Ardour Global Index Extra Liquid, which focuses on the performance of low carbon energy companies primarily engaged in alternative energy. It holds about 30 stocks in its basket with AUM of $89.2 million while charging 63 bps in fees per year. Average daily volume is paltry at about 4,000 shares. Tesla occupies the second position in the basket with 9.1% allocation. In terms of country exposure, the fund is skewed toward the United States with 67.6% share while Denmark and China round off the next two spots.

First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN

This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $115.5 million. It charges 60 bps in fees per year while trading in light volume of around 16,000 shares per day. In total, the product holds 43 securities with Tesla Motors taking the top spot at 8.7%. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Clean Energy ETFs Riding Higher).

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