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Tesla Tumbles on Wider Than Expected Q2 Loss: ETFs to Watch

Sweta Killa

After the closing bell on Wednesday, Tesla Motors TSLA once again reported dismal quarterly results. The electric carmaker missed estimates on both fronts in the second quarter of 2019.

Adjusted loss per share was $1.12, much wider than the Zacks Consensus Estimate of loss of 54 cents. The company had incurred loss of $3.06 per share in the year-ago quarter. Revenues of $6.35 billion fell short of the Zacks Consensus Estimate of $6.38 billion but came in higher than the year-ago figure of $4 billion.

Earlier in July, Tesla revealed that it had produced record 87,048 vehicles (72,53 Model 3 and 14,517 Model S and Model X combined) during the quarter and delivered a record 95,200 (77,550 Model 3 and 17,650 Model S and X) vehicles, up 52% from the first quarter. The availability of Model 3 in the United Kingdom and continued interest from mainland Europe and China led to strong demand. Additionally, orders placed were more than deliveries, causing a spurt in order backlog in the ongoing third quarter (read: Tesla Hits Record Q2 Deliveries: ETFs Set to Soar).

Overall, Tesla continues 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.

Further, the company is likely to break even in the third quarter and return to profitability in the fourth quarter. Tesla remains on track to start local production of Model 3 in China by the end of the year and Model Y in Fremont by fall of 2020.

The wider-than-expected loss pushed down shares of Tesla by as much as 12% in aftermarket trading. The stock currently has a Zacks Rank #3 (Hold) and a VGM Score of F. It belongs to a bottom-ranked Zacks industry (bottom 35%).

ETFs to Watch

Tesla earnings have put the spotlight on ETFs having substantial allocation to this luxury carmaker. We highlight five of them in detail below.

ARK Industrial Innovation ETF (ARKQ)

This is an actively managed ETF, seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research related to energy, automation and manufacturing, materials, and transportation. This approach results in a basket of 35 stocks, with TSLA occupying the top spot with 11.8%. The product has accumulated $175.6 million in its asset base and charges 75 bps in fees per year. It sees lower volume of about 25,000 shares a day (read: Tesla Steers Solid Growth Prospects: ETFs to Buy).

ARK Innovation ETF ARKK

Like ARKQ, this is also an actively managed fund. It follows the same strategy but provides exposure to genomic companies, industrial innovation companies or Web x.0 companies. In total, the fund holds 38 securities in its basket, with Tesla occupying the top position, accounting for 11.7% share. The product has accumulated $1.7 billion in its asset base and trades in a good volume of about 326,000 shares. Expense ratio comes in at 0.75%.

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 37 stocks in its basket with Tesla occupying the top position at 10.5%. The ETF has amassed $451.5 million in its asset base and trades in good average daily volume of around 104,000 shares. It charges 75 bps in annual fees.

VanEck VectorsLow Carbon Energy ETF SMOG

This fund offers exposure to low carbon energy companies, primarily engaged in alternative energy, which includes power derived principally from bio-fuels (such as ethanol), wind, solar, hydro and geothermal sources and also includes the various technologies that support the production, use and storage of these sources. This can be easily done by tracking the Ardour Global Index Extra Liquid. The ETF holds 30 stocks in its basket with Tesla taking the third spot at 10.1% allocation. It manages $96.4 million in its asset base and trades in average daily volume of 5,000 shares. Expense ratio comes in at 0.63%.

First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN

This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $110.8 million. It charges 60 bps in fees per year while trading in light volume of around 13,000 shares per day. In total, the product holds 41 U.S. securities, with Tesla Motors taking the top spot at 9.2%. It has a Zacks ETF Rank #4 (Sell) with a High risk outlook (see: all the Alternative Energy ETFs here).

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