Market Overview

23 July 2020

Tesla and Daimler Automakers in the Mirror of Overall Market's Optimism

Markets continue to react in a predominantly positive way to the information coming from news feeds using a clearly risk-on approach. Such a conclusion seems to be confirmed at the moment, not so much by some new summer records for the U.S. S&P500 broad market index, where the fresh upward movements are still accompanied by pullbacks almost every day, but more by the fact that safe-haven potential of the U.S. Dollar is seemingly being ignored.

For example, Pfizer and BioNTech yesterday announced a new agreement with the U.S. Government that already placed an initial $1.95 billion order of 100 million doses of the vaccine candidate, even before the last stage of investigations, and it can acquire up to 500 million additional doses later. Americans may receive the vaccine sooner than it was expected. That caused a wave of enthusiastic rush and helped to quickly raise the prices of some commodity assets and currency pairs, including new highs on silver, platinum, EUR/USD and AUD/USD. At the same time, the market totally ignored the Sino-U.S. tension outbreak with the closure of the Chinese consulate in Houston by White House authorities and further retaliation by Beijing. Media resources are full of reports and comments about the U.S. now blaming Chinese personnel of "stealing" American intellectual property and this could have far greater consequences or even become the final nail in the coffin of the U.S.-Sino trade agreements, but the market community is almost undisturbed.

Today the European composite stock indexes were also seen to open a little higher, helped by an increase in GermanGfk consumer confidence. The forward-looking consumer sentiment index rose to -0.3 points for August, better than the -5 points expected and the -9.6 points seen for July. Altogether, it has gained 22.8 points since its spring low of -23.1 points. "There is no doubt that the reduction in value-added tax has contributed to the extremely positive progress," said Rolf Buerkl, consumer expert at GfK, explaining that consumers are looking to make major purchases earlier than planned, which will help boost spending this year. These routine messages have also been favourably met by many investors all over the world, since the corporate reports of many large companies do show a smaller Q2 2020 decline in sales than almost everyone feared.

Daimler CEOs said the German car manufacturer still expects to make an operating profit this year despite the hit from the quarantine due to the coronavirus, which resulted in a large second-quarter operating loss, so its shares already gained more than 5.5% from today's opening price, reaching its record peak since February. This price movement occurred despite the fact that Daimler showed in today's release a loss of -€1.87 per share for the second quarter, which is worse than the average Bloomberg poll forecast of -€1.07 per share, with revenue falling by 29.2% compared to the same period in 2019 to €30.18 billion, which is €18.9% worse than in the first quarter of 2020.

It may seem a paradoxical response, but the U.S. markets have reacted in a humbler manner so far to a much more positive report from Tesla, which is the cult manufacturer of electric cars and a space-flight hero. Tesla turns a $100.4 billion profit in a pandemic-squeezed quarter, as the company's revenue in the second quarter fell five % only to $6 billion, and total sales of automobiles also declined by five % to about 91,000 cars. The result was achieved “despite tremendous difficulties,” said the chief executive and the creator of the company Elon Musk, including a plant shutdown and lower sales. The profitable performance was a surprise for many analysts, who were expecting the electric carmaker to lose at least some money as the pandemic squeezed the company on two fronts. But “we were able to achieve a fourth consecutive profitable quarter. Although the auto industry was down about 30 percent year-over-year, we managed to grow deliveries in the first half of the year,” Elon Musk remarked.

"Tesla appears to be weathering the pandemic better than some other automakers. In China, the world’s largest market for electric vehicles, the company has benefited from a new factory near Shanghai that began production late last year. The plant enables Tesla to avoid the tariffs China imposes on imported vehicles and has made its cars more affordable to Chinese consumers,” the New York Times wrote last night. Moreover, Tesla has started work on a fourth car factory at a site near Austin, Texas, Mr. Musk said. It will produce Tesla's new electric pickup truck, the Cybertruck, and a new semi-truck, along with the Model 3 and Model Y, which it already makes at a factory in the San Francisco area, where production was barely able to defend itself in a battle with local authorities during the long California state quarantine period. The new factory represents a substantial investment for Tesla, so that Elon Musk added he doesn’t want Tesla to be ‘super profitable’ now. Even these words did not turn away many addicted investors from a $300 billion valuation company who have experienced several unprofitable years and believe in the company’s future.

Tesla’s shares jumped to $1,657 after the markets' close on Wednesday but traded near $1630 at today's pre-market or up by 2.37% vs yesterday's market's closing level. The secret of a rather humble present reaction is that the Q2 earnings report revealed a better update than preliminary good figures that Tesla released earlier this month. So, most of the market players' best expectations are in the shares' price that recently soared from below $1000 at the end of June to almost $1800 in the middle of July with a further natural technical correction to the $1450-1550 area. Probably, the second reaction may spark high volatility, during which investors may try on the current price range. So the prices are going to "wear in" before the next wave of the crowded movements. 

Something similar may happen also with Amazon shares, as the internet giant reports today, and the Q2 release is almost certain to be excellent, but the main question remains to what extent this good news is already included in the current levels of prices. Many experts from large investment funds, including Goldman Sachs, forecasted that Amazon's potential value may rise to $3,500 per share or even more by the end of the year. However, market participants are wondering whether the recent correction below $3,000 per share was enough for further purchases to resume, or whether the new investment interest may require a deeper correction first.


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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.



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