Single-Stock Tesla ETF Racing to Hit Billion-Dollar AUM

In recent weeks, Tesla Motors TSLA has made headlines in the world of finance with a record-breaking 13-day winning streak that saw the company’s shares climb to unprecedented heights though the streak broke after the Fed rate hike pause. The incredible surge has put one ETF on track to become the first billion-dollar single-stock ETF.

Direxion Daily TSLA Bull 1.5X Shares TSLL had about $774 million in AUM as of Jun 14. This 10-month-old ETF is far and away the largest U.S.-listed single-stock ETF on the market today. TSLL offers 1.5 times (150%) the daily percentage change of the common stock of Tesla, charging 95 bps in annual fees.

TSLL’s success can be attributed to a combination of rapid price appreciation in Tesla’s stock since the start of the year, along with strong money flows into the ETF. Since its inception on Aug 9, 2022, investors have pumped $482 million into TSLL (read: Electrifying Opportunities in EV ETFs as Tesla & Ford Join Forces).

Inside The Surge in TSLA

Shares of the electric-vehicle maker witnessed the longest ever gaining streak, soaring more than 40% and adding over $240 billion to the valuation since late May. Its market capitalization surged to nearly $810 billion. The record-breaking 13-day winning streak of Tesla’s shares can be attributed to a combination of strategic partnerships, beneficial policy changes, and the significant shift in market dynamics.

Strategic Partnership With General Motors: One of the most powerful factors that influenced Tesla’s recent surge was a strategic partnership with General Motors (GM). On Jun 8, GM announced plans to collaborate with Tesla to integrate the North American Charging Standard (NACS) plugs into its electric vehicles (EVs) starting in 2025. This move allows GM EVs to be compatible with Tesla’s vast Supercharger network, which consists of over 12,000 charging stations.

The GM-Tesla deal has not only made the transition to EVs more seamless for GM customers but also potentially lowered the barriers for other EV owners to access robust charging infrastructure. The partnership has significantly shifted the dynamics of the EV market, giving Tesla a competitive edge and effectively leveraging its substantial investment in charging infrastructure.

Impact on EV Charging Stocks: The announcement of the GM-Tesla pact also triggered significant changes in the EV charging landscape. Other EV charging stocks experienced a plunge in their share prices, which further emphasized Tesla’s growing influence in the EV charging space (read: Tesla’s Surge Boosts EV ETFs).

The decision by major automakers like GM to utilize Tesla’s extensive Supercharger network hinted at a possible trend of outsourcing charging infrastructure to Tesla. This development could potentially favor Tesla’s chargers over those of rival firms, and diminish the chances of other charging companies to establish similar, exclusive alliances with major automakers.

Federal Tax Credits and Aggressive Discounts: In addition to strategic partnerships, Tesla benefited from changes to federal tax credits. All versions of the Model 3 now qualify for $7,500 electric vehicle consumer tax credits, which, along with other tax breaks, could lower its price to less than a Toyota Camry. The availability of these tax credits and aggressive discounts are likely to boost sales of Tesla’s mainstay Model 3, which has faced challenges due to a major revamp this year, economic uncertainty, and increasing competition.

Downside Risks

The strong momentum might not continue given that Tesla is currently in the overbought territory and saw negative earnings estimate revision for this year (read: Time to Sell Tesla? Inverse ETFs to Earn Profits).  

After a record winning streak, the Tesla stock chart suggests that bulls may be running out of breath, which could spell trouble for it in the near term. According to the MarcketWatch article, Tesla’s stock has been the most overbought in nearly two years, as indicated by Relative Strength Index (RSI) momentum. The stock’s RSI, which is a momentum indicator that measures the magnitudes of recent gains against recent losses, reached the highest level since early-November 2021, suggesting trouble for the EV maker’s stock.

Per Zacks, Tesla is trading at P/E ratio of 72.65 versus the industry average of 11.00. The stock saw negative earnings estimate revision of 6 cents over the past 30 days for this year, reflecting an earnings decline of 12.5% versus the industry’s growth projection of 7.01%.

Bottom Line

Tesla currently has a Zacks Rank #3 (Hold) and a Growth Score of B, suggesting that it is primed for growth. Additionally, it belongs to a solid industry, which is placed at the top 32% in terms of ranking among more than 250 Zacks industries.

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