Tesla: 2 Plays Ahead of Next Week's Earnings Report

Key Points

• Tesla heads into a pivotal earnings report next week, with the stock still up nearly 50% from April's lows.
• However, analysts remain sharply divided, offering investors two clear paths: position for a breakout or wait for a post-earnings dip.
• Regardless of your appetite for risk, there should be some solid opportunities opening up in the coming sessions. 

Tesla Inc. NASDAQ: TSLA heads into next week's earnings report with a lot riding on the outcome. Shares have surged as much as 70% from their multi-year lows reached in April, and while they've given back some of the gains, they're still up close to an impressive 50%.

With earnings scheduled for Wednesday of next week, investors now face a pivotal moment: Will Tesla back up the recent gains with strong numbers, or is there a painful reversal on the cards?

Depending on your appetite for risk, two distinct paths lie ahead. Here's how you can take advantage of the setup yourself. 

Play #1: The Bullish Trade (Betting on the Breakout)

If you believe in the company's long-term vision and are optimistic about Tesla in general, next week's catalyst presents a compelling opportunity to get involved beforehand. Analysts from Mizuho and Wedbush have already reiterated their bullish stances this month, highlighting significant long-term potential that is hard to ignore if you're a Tesla bull. 

In particular, Wedbush analyst Dan Ives stands out with his $500 price target, implying more than 50% upside potential from where the stock closed on Monday. Ives believes Tesla's dominant position in electric vehicles, along with long-term autonomous driving potential, justifies continued bullishness even after the recent gains.

Mizuho has a similarly upbeat stance and has emphasized that recent execution improvements and increased clarity around its Robotaxi ambitions strengthen Tesla's prospects for further growth. 

This bullish scenario strongly suggests buying the stock, if not increasing an existing position, ahead of earnings. If the numbers beat expectations or if management provides better-than-forecasted guidance, shares could easily spike towards recent highs around $370 and potentially begin a fresh leg towards $400 and beyond.

From a technical perspective, the stock has started to set some higher lows and lower highs, effectively forming the start of a pennant. Don't be surprised if this pattern continues to emerge in the coming sessions, with a clear break in one direction likely coming with the results. 

Play #2: The Cautious Trade (Wait and See)

While plenty of Tesla bulls are on Wall Street, not every analyst is convinced. Last week, a notable downgrade from William Blair's Jed Dorsheimer pointed to the significant risks still lingering for Tesla. Dorsheimer lowered Tesla from Outperform to Market Perform, highlighting the recent removal of the $7,500 EV tax credit as a material headwind for consumer demand.

This tax credit elimination could directly impact Tesla's sales volume and profitability, especially when combined with the potential threat to regulatory credits, which have been a big profit driver. These developments could overshadow what he still sees as positive long-term fundamentals, making next week's earnings particularly dicey.

If you share this slightly bullish yet cautious outlook, your trading strategy should be more about risk management. Investors could start scaling into a small position ahead of the report to ensure they catch some of the upside if the stock takes off, but they should hold back most of their gunpowder until the uncertainty has been removed.

In the best-case scenario, you can buy even more Tesla shares at a discount; in the worst-case scenario, you can add to your position as the stock breaks out to the north.

Choosing Your Path

Keep in mind, though, that any stumble, particularly concerning demand outlook or margins, could trigger a sharp pullback that might take some weeks to play out. Given Tesla's recent rally and rich valuation, a negative surprise could quickly drive the stock back towards key technical support around $280. 

Either way, next week's earnings will be a defining moment. Tesla has long had a reputation for keeping investors on their toes, and it doesn't look like it's going to stop doing that anytime soon.