Elon Musk’s Tesla (NASDAQ: TSLA) announced first quarter deliveries of 422,875 vehicles, good for an all-time high while putting the electric vehicle goliath on pace to at least meet 2023 delivery forecasts.
While the shares sold off Monday, the first quarter delivery update and analysts’ expectations that the company will meet or slightly beat this year’s delivery forecast could prove beneficial to Tesla-heavy exchange traded funds, including the ARK Innovation Fund (ARKK).
ARKK, which is ARK Investment Management’s flagship ETF, allocates 10.37% of its weight to Tesla, making the stock the fund’s largest holding by 230 basis points over second-place Zoom Video Communications (NASDAQ: ZM).
Notable to ARKK and Tesla investors alike is the point that car buyers proved responsive to the company’s recent price reductions, which Musk implemented as an avenue for defending market share and helping consumers deal with soaring inflation. While lower prices weigh on margins, there is benefit to the top line.
“Some of the growth was likely driven by the price cuts implemented at the start of the year. While the lower prices had the desired effect of growing demand, they will reduce the per-vehicle profitability, weighing on margins, partially offset by cost reductions from the continued ramp-up of the two new factories,” wrote Morningstar analyst Seth Goldstein. “We expect Tesla’s profit margins will contract in 2023. We forecast companywide operating margins will shrink 260 basis points from 16.8% in 2022 to 14.2%.”
Beyond the aforementioned first quarter delivery numbers, there are some potential near-term catalysts for shares of Tesla. Those include the company’s first-quarter earnings report due out later this month, which could feature clarity on U.S. government tax credits directed to buyers of electric vehicles.
“When Tesla reports financial results later this month, we will look for management’s plan in response to the U.S. Treasury Department’s guidance on the Inflation Reduction Act. Based on the updated results, the least expensive version of the Model 3 will likely be ineligible for the $7,500 tax credit as the battery is produced in China. This has the potential to weigh on Tesla’s sales growth in the U.S. as the lack of a credit may turn some consumers away. This will likely keep Tesla’s sales volumes toward the lower end of management’s 2023 guidance for 1.8-2 million vehicles,” concluded Goldstein.
For those keeping score, just five ETFs have larger Tesla allocations than does ARKK. One member of that quintet is the ARK Autonomous Technology & Robotics ETF (ARKQ).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.