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Dow Jones Futures: Tesla Falls as Gross Margins, Free Cash Flow Plunge




Dow Jones futures fell slightly after hours, along with S&P 500 futures and Nasdaq futures. Tesla ( TSLA ) fell solidly late Wednesday as earnings fell solidly due to big price cuts, with gross margins and free cash flow falling far more than expected.




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Lamb Research (LRCX) and Las Vegas Sands (LVS) also reported Wednesday night, with LRCX rising slightly and LVS stock signaling a breakout. Taiwan Semiconductor (TSM), DR Horton (DHI) and more finances are to be delivered early Thursday.

Stock gains remained muted on the surface Wednesday with the major indexes narrowly mixed. That’s despite hardware technology stocks falling on concerns about IT spending Netflix ( NFLX ) retreated on disappointing subscriber growth.

Megacap technology held up well. apple ( AAPL ) rose 0.7% to 167.63, hitting an eight-month high. Apple stock cleared a three-week tight entry of 166.94. Microsoft (MSFT) added a few cents, still in a buy zone and parent Google Alphabet (GOOGL) edged lower, just below a buy point. Amazon.com (AMZN) rose nearly 2% to a two-month high, but remained below the 200-day mark. Meta platforms ( META ) fell 1% but remained near 11-month highs.

The META stock is on the IBD Leaderboard and SwingTrader. MSFT stock is on the IBD Long-Term Leaders. LRCX stock is on the IBD Big Cap 20.

Dow Jones Futures today

Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.3%. Tesla stock is a major S&P 500 and Nasdaq 100 component.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.


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Tesla revenue

Tesla’s revenue fell 21% compared to a year earlier, in line with views. Revenue rose 24% to $23.31, just below FactSet views for $23.73 billion. That was down sequentially from Q4’s $24.3 billion.

Large price cuts increased demand, but at the expense of earnings and profit margins.

Gross margins fell to 19.3% compared to 23.8% in the 4th quarter and 29.1% a year earlier. Automotive gross margins excluding regulatory credits and leases decreased to 18.3% from 23.8% in Q4.

Tesla had said 20% would be a “floor” for gross margins for cars excluding credits and leasing.

Free cash flow fell 80% compared to a year earlier to $441 million vs. expectations of around 2.3 billion dollars. Tesla had negative cash flow excluding $467 million in auto regulatory credits.

Continued price cuts are likely to continue to push gross margins forward.

Tesla cut prices in the US for the second time this month late Tuesday. Model Y prices were cut by $3,000, from $46,990. The base price of the Model 3 was cut by $2,000 to $39,990. Most Model 3 and Y variants are eligible for $7,500 in tax credits, but starting April 18, the base Model 3 only gets $3,750.

Tesla has also cut prices in Europe and some other key markets in April.

On the Tesla earnings call, investors will look for guidance on price cuts, deliveries and price going forward.

Tesla CEO Elon Musk on the earnings call that it is better to ship many cars with a lower margin, then reap higher margins when Tesla achieves full sales run. Musk said he expects Tesla to achieve full autonomy by 2023. He has been predicting full autonomy for several years.

Musk also said there will be a Cybertruck event in the third quarter. It is unclear when Cybertruck mass production will begin.

Tesla bulls also have high hopes for the company’s energy storage business. Energy generation and storage revenue rose 148% to $1.53 billion in the first quarter.

Tesla shares

TSLA shares fell 6% in extended trading. Shares fell 2% to 180.59 on Wednesday, trading below their 50-day moving average. Tesla stock has a buy point at 207.89 from a cup-with-handle base that formed just below its 200-day moving average. Investors may prefer to use a decisive break of the 200-day line, currently around 213, as a TSLA stock entry. A third possible buy point for Tesla stock would be a strong move above the 50-day mark.

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LRCX stock turned slightly higher in late trading. Lam Research earnings beat fiscal Q2 views, but the chip-gear giant guided low for Q3. The stock fell 0.9% to 491.02 on Wednesday. LRCX stock has a 548.95 flat-base buy point.

LVS shares rose solidly overnight to around 62 after Las Vegas Sands earnings topped the showings, kicking off results for Macau-focused casinos. Shares rose 2 cents to 59.36 on Wednesday. Las Vegas Sands stock has a 60.40 buy point from a cup with handle, MarketSmith analysis shows.

TSM shares fell 1% to 87.23 on Wednesday ahead of Thursday’s results. A big question is whether Taiwan Semi cuts its investment plans. TSM stock has a buy point at 99.09 in a consolidation with possible early entries, but needs to break above the 50-day line.

DHI shares fell 0.3% to 101.86 on Wednesday but are still up nearly 4% for the week, staying in a buy zone above a 99.09 cup-handled entry. DR Horton’s earnings are expected to fall 52%.

Stock market rally on Wednesday

The stock rally opened lower and improved steadily to narrowly mixed on the major indices

The Dow Jones Industrial Average fell 0.2 percent in Wednesday’s trading. The S&P 500 index fell less than 1 point. The Nasdaq composite rose a fraction. The small-cap Russell 2000 rose 0.1%.

US crude oil prices fell 2.1% to $79.16 a barrel.

The 10-year government yield rose 3 basis points to 3.6%. Inflation in the UK cooled slightly in March, but only to 10.1% vs. views. for a reading of less than 10%. Markets are close to locking in a quarter-point rate hike from the Fed on May 3, with a decent chance of another move in late June. It partly reflects banking fears that are waning.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 1.2%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 0.7%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 0.25%, with MSFT stock a large holding. The VanEck Vectors Semiconductor ETF ( SMH ) gave up nearly 1%. TSM shares and Lam Research are major SMH components.

ARK Innovation ETF ( ARKK ), reflecting more speculative stock stocks, fell 0.1% and ARK Genomics ETF ( ARKG ) rose 1.2%. Tesla stock is the top holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) retreated 1.4% and the Global X US Infrastructure Development ETF ( PAVE ) fell 0.4%. The US Global Jets ETF (JETS) rose 1.6%. The SPDR S&P Homebuilders ETF ( XHB ) rose 0.3%. The Energy Select SPDR ETF (XLE) was down 0.35% and the Health Care Select Sector SPDR Fund (XLV) was up 0.3%.

The Financial Select SPDR ETF (XLF) rose 0.2 percent. The SPDR S&P Regional Banking ETF ( KRE ) jumped 3.9% on some solid earnings reports.


Top five Chinese stocks to watch now


Market rally analysis

The stock rally continues to stay in a recent range, but not far from the 2023 highs. The major indexes continue to trade close, but with a glacial upside trend.

Losers slightly outpaced winners on the NYSE and Nasdaq. Market breadth has improved over the past couple of weeks, but it’s not good. New highs have generally followed new lows, but especially on the Nasdaq.

Many growth stocks struggled, with hardware technology hitting demand. Technical supplier CDW (CDW) warned of weak IT spending. Chip-gear giant ASML ( ASML ) beat Q1 views but cited customer concerns. Extreme networks (EXTR) plunged, hitting other network plays, on an analyst downgrade related to IT spending. Storage companies also struggled.

Chipmakers are struggling, with SMH testing its 50-day line again while ASML weighed on the sector. It’s even included Nvidia (NVDA) holds up.

Medical products continued to lead on Wednesday. Intuitive surgical (ISRG) blown out of a revenue base. Edwards Lifesciences (EW) broke out of a bottom base while Dexcom (DXCM) also flashed early entries. But both have earnings next week.

Homebuilders and related stocks remain strong, with mostly internal movements. DR Horton’s earnings will be a heat check for the sector.


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What to do now

The market recovery is moving sideways. Not many stocks are flashing buy signals, and some of these are quickly paring gains or even reversing lower. So investors should be cautious about adding new purchases right now, and ready to cut losses.

The earnings season adds uncertainty to the market, various sectors and individual stocks. Amazon, Google, Microsoft and Meta Platforms all report next week, with Apple next week. Hundreds of other companies will also report.

So stay engaged and flexible.

If the market rally increases, both on the major indexes and leading stocks, the buying opportunities should be numerous and more likely to hold. It’s time to record the exposure. Right now is the time to prepare, build your watchlists, look for cross-sector setups.

Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.

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