Tesla ETFs Plunge Ahead of Key Earnings Report

ETFs holding the EV stock are sharply underperforming the market this year.

Tesla shares plunged on Monday ahead of what’s expected to be a disappointing earnings report later this week. 

The electric vehicle company is the worst-performing member of the Magnificent Seven this year, with a loss of 42%. 

That’s pressured exchange-traded funds with big weightings in the stock, such as the Meet Kevin Pricing Power ETF (PP) and the Consumer Discretionary Select Sector SPDR Fund (XLY), which hold 18.3% and 13.5% of their portfolios, respectively, in Tesla. 

PP and XLY are each down around 5% year-to-date, a sharp underperformance versus the SPDR S&P 500 ETF Trust (SPY), which is up by the same amount.  

Tesla stock has been sinking for much of this year as demand for electric vehicles has slowed. EV makers have been engaging in a fierce price war to maintain their market share. 

Tesla Deliveries Sink

On April 2, Tesla reported that it delivered 386,810 vehicles in the first quarter, a decline of 8.5% compared to the same period last year, and much lower than the 457,000 vehicles that analysts were expecting. 

Tuesday after the closing bell, Tesla will report how those weak delivery numbers affected the company’s profits—and the news isn’t expected to get any better. 

Analysts estimate that Tesla will report earnings per share of $0.52 for Q1, well below the $0.82 they expected at the start of the year and a decline versus the $0.85 in earnings the firm generated in the first quarter of last year. 

Gross margin is expected to fall below the fourth quarter’s 17.6%, reflecting the company’s aggressive price cuts.  

“The focus on Tesla’s earnings will be on further slowing sales volume and the impact of lowering prices to stimulate sales. Another area to watch will be their guidance regarding potential further margin compression from price cuts,” said Ed Egilinsky, managing director at Direxion. 

Leveraged Bets

Direxion manages the $600 million Direxion Daily TSLA Bull 2X Shares (TSLL), the largest single-stock ETF tied to Tesla. 

Shares of the ETF are down nearly 65% this year, but judging by its $330 million of inflows in 2024, many traders are betting on a rebound. 

Tesla may have to clear the low bar set for this week’s earnings report for those bets to pay off in the short term.