- Shares of Tesla topped $1,200 Thursday as the company beat on deliveries.
- The sector as a whole just had its worst quarter in a dozen years.
- Caution makes sense as a growth company in a declining sector could peak sooner than expected.
Tesla Motors (NASDAQ:TSLA) is in the spotlight yet again. This time, shares are moving on news rather than retail investor interest. The company reported its 2020 Q2 delivery numbers—and it’s a solid beat.
Behind the Numbers of Tesla’s Quarterly Win
The electric car manufacturer produced 82,272 vehicles and delivered 90,650. So not only was production great, but the company managed to reduce a lot of car inventory before it could depreciate.
The news comes after the company had to shut down its main Fremont facility due to the pandemic, making for a huge comeback story.
That was enough to send shares rocketing over $1,200 in early morning trading, hitting a price target set two weeks ago.
In terms of market capitalization, the carmaker now exceeds the value of Toyota (NYSE:TM). And Tesla shares are up 170% in the past year, even with a significant meltdown in stocks back in March. Tesla is not only growing–it’s expanding its market share. That’s excellent news for any company.
Is it enough to justify the company’s current valuation? Possibly, at least by comparison. Toyota and other carmakers were either flat or saw a small drop in sales last year while Tesla surged ahead. Now the company has managed to grow sales during a global pandemic.
There’s just one big problem…
The Auto Market Just Received Its Biggest Blow Since the Great Recession
Tesla may be a growth story, but the sector it’s in–automotive sales–just posted its biggest drop since the Great Recession. Growth works best in a growing sector of the economy. The automotive space is shrinking.
In total, the large automakers saw a 30% drop in sales. The culprits are clear. Between job losses and shutdown of auto showrooms and manufacturing plants, production and sales of new vehicles have become difficult.
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Nearly all the automakers fell roughly the same amount. General Motors (NYSE:GM) reported a 34% drop in sales. Fiat Chrysler (NYSE:FCAU) plunged 39%. Toyota fell 35%, but it did say June sales were only down about 22%.
It’s possible that the auto sector can bounce back quickly. With rising remote work trends this year, chances are that car sales may stall out for years instead.
Used car sales may dominate in the next year as well, as bankrupt car rental company Hertz (NYSE:HTZ) looks to sell off its fleet of pre-owned vehicles.
Today’s bullish investors on Tesla need to factor in how the collapsing industry as a whole will fare and how that will impact shares going forward.
With the share price moving up at a steep, parabolic-like pace in the past year, it’s starting to look less like a carmaker and more like bitcoin circa late 2017.
Tesla does look like one of the best companies to weather the storm in the automotive sector right now, thanks to its all-electric fleet and rising production numbers.
Just beware: Any company grabbing market share in a declining industry has an uphill battle ahead.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.