Tesla Turnaround in the Cards? Bet on These ETFs

After losing about a third of its value this year, Tesla Motors TSLA staged a strong comeback, rallying more than 30% since the start of last week. This is especially true as the fortunes for the electric carmaker seem to be turning around given the company’s strong efforts of bringing autonomous driving in China.

Investors seeking to tap the turnaround should buy ETFs having a substantial allocation to this luxury carmaker. These include Consumer Discretionary Select Sector SPDR Fund XLY, Simplify Volt Robocar Disruption and Tech ETF VCAR, ARK Autonomous Technology & Robotics ETF ARKQ, ARK Innovation ETF (ARKK) and MicroSectors FANG+ ETN FNGS.

Is the Turnaround Real?

Tesla is making great progress toward its driver-assistance technology. It received approval to roll out its advanced driver-assistance technology, Full Self Driving or FSD, in China. Following the news, Tesla’s stock rose more than 15% on Apr 29, marking its largest one-day jump since February 2020 and adding approximately $82 billion to its market capitalization.

FSD marks an upgrade to Tesla’s Autopilot driver assistant. Tesla has also reached a deal with Chinese tech giant Baidu BIDU to form a partnership on mapping and navigation functions ahead of plans to deploy the FSD system, according to a Bloomberg report.

Its success in introducing FSD technology in China, the largest market for electric vehicles, represents a significant victory for Tesla amid intense competition in the market. This breakthrough comes at a time when local contenders, including Warren Buffett-supported electric vehicle manufacturer BYD, as well as Nio and XPeng, are giving Tesla tough competition.

If Tesla succeeds in bringing its FSD system to China, the U.S. electric car pioneer will have an early lead in developing driver-assistance systems with some autonomous features and could prove to be a fierce competitor in the country’s autonomous vehicle segment. The technology would provide a huge boost to the electric carmaker revenues, which have dropped sharply since 2012 in the latest quarter and represent the first year-over-year quarterly decline since 2020.

The electric carmaker also signaled its plans to move sooner than expected with the production of lower-priced models and the continued investment in future “robotaxis” in its latest quarterly earnings report (read: Tesla Rises on Future EV Plans Despite Q1 Miss: ETFs in Focus).

Chief executive Elon Musk expects Tesla’s turnaround to happen as early as the end of 2024. In a letter to shareholders, the leading electric carmaker said that it will accelerate the launch of new, affordable EV models, whose production might begin in early 2025, ahead of the initial target in the second half of 2025. The new and more affordable models will be built on Tesla's next-generation platform and will be produced on the same production sites as Tesla's current offerings. Additionally, Tesla is working toward increasing production by 50% this year.

Further, Tesla is betting on driverless software and artificial intelligence in an attempt to revive sales. It is slated to introduce “robotaxis” — a driverless car without a steering wheel or pedals on Aug 8. The next-generation vehicle is widely thought to be key to the electric automaker’s survival, especially as competition heats up in the EV space.

ETFs to Consider

Consumer Discretionary Select Sector SPDR Fund (XLY)

Consumer Discretionary Select Sector SPDR Fund offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. Holding 52 securities in its basket, Tesla takes the second spot with 12.9% assets.

Consumer Discretionary Select Sector SPDR Fund is the largest and most popular product in this space, with an AUM of $19.1 billion and an average daily volume of around 4.4 million shares. It charges 9 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Simplify Volt Robocar Disruption and Tech ETF (VCAR)

Simplify Volt Robocar Disruption and Tech ETF is an actively managed ETF seeking concentrated exposure to the leader of autonomous driving technology. It employs a call option overlay to seek boosts in performance during extreme moves up in Tesla while holding a tech index for diversification and put options as a hedge.

Simplify Volt Robocar Disruption and Tech ETF charges investors 0.95% in annual fees. It has accumulated $3.8 million in its asset base.

ARK Autonomous Technology & Robotics ETF (ARKQ)

ARK Autonomous Technology & Robotics ETF is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of products or services, and technological improvement and advancements in scientific research related to energy, automation and manufacturing, materials, and transportation. This approach results in a basket of 36 stocks, with Tesla occupying the top spot with a 12.1% share (read: Beyond "Big Six:" Why Choose Non-Cyclical Sector ETFs?).

ARK Autonomous Technology & Robotics ETF has accumulated $824.3 million in its asset base and charges 75 bps in fees per year. It trades in a volume of 116,000 shares a day on average.

ARK Innovation ETF (ARKK)

ARK Innovation ETF is an actively managed fund investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research related to the areas of DNA Technologies and Genomic Revolution, Automation, Robotics, Energy Storage, Artificial Intelligence, Next Generation Internet and Fintech Innovation. In total, the fund holds 36 securities in its basket, with Tesla occupying the top spot at 12.3%.

ARK Innovation ETF has gathered $6.5 billion in its asset base and charges 75 bps in fees per year from investors. It trades in average daily volume of 12 million shares.

MicroSectors FANG+ ETN (FNGS)

MicroSectors FANG+ ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar-weighted index. It is designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 stocks in its basket in equal proportion, with Tesla’s share coming in at 10% (read: Should You Buy the Dip in Magnificent 7 ETFs Before Q1 Earnings?).

MicroSectors FANG+ ETN has accumulated $248.9 million in its asset base and charges 58 bps in annual fees. It trades in a moderate volume of 150,000 shares a day on average and has a Zacks ETF Rank #3 (Hold).

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Baidu, Inc. (BIDU) : Free Stock Analysis Report

Tesla, Inc. (TSLA) : Free Stock Analysis Report

Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

ARK Autonomous Technology & Robotics ETF (ARKQ): ETF Research Reports

MicroSectors FANG+ ETN (FNGS): ETF Research Reports

Simplify Volt Robocar Disruption and Tech ETF (VCAR): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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