Musk's Latest Master Plan Will Test Tesla's 70% Rally

When Elon Musk presents his most recent and much anticipated "master plan" for the electric-vehicle manufacturer on Wednesday, the stock market's revived enthusiasm for Tesla Inc. is set to be put to the test.

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A number of Wall Street analysts have been more optimistic on the company in the weeks leading up to the event, raising expectations and pushing the percentage of buy recommendations for Tesla to its highest level in more than a decade. Nevertheless, any further gains may require more fireworks than what the company's chief executive officer is anticipated to offer after a 70% increase in just two months.

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Given the stock's year-to-date run-up, Barclays analyst Dan Levy stated in a note on Monday that "we feel the bar has been lifted entering investor day, potentially setting the event up for a'sell the news' reaction." Levy, who rates the company with the equivalent of a buy recommendation, believes that the incident would "reinforce the long term opportunity ahead on Tesla," nonetheless.

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For the past 18 months, Tesla shares have taken investors on a wild ride. The company's once-over $1 trillion market capitalization was reduced to less than $350 billion by early January of last year as a result of the dramatic decline in growth stocks brought on by rising interest rates. 

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But since then, the company has undergone a significant turnaround as investors' desire for growth firms has returned and there are indications that the market for Tesla's automobiles is strengthening. The EV manufacturer's better-than-expected fourth-quarter earnings and a proposal by President Joe Biden's administration to increase EV tax incentives helped to bolster that opinion. Tesla is currently closing close on Berkshire Hathaway Inc.'s market valuation, and if it surpasses it, it will rank as the fifth most valuable corporation in the US.

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All of those elements increased analysts' confidence in the stock. 30 of the 48 analysts who follow Tesla currently advocate purchasing it, the highest percentage since October 2012.

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Analysts anticipate updates on the company's battery technology, information on its manufacturing capability, and most significantly, the unveiling of a more affordable vehicle during the anticipated release of Musk's third so-called master plan on Wednesday (the others were in 2006 and 2016). The gathering on March 1 will focus on "the path to a truly sustainable energy future for Earth," Musk tweeted earlier in February.

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Following AMLO's conversation with Musk, Tesla will build in northern Mexico.

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With options traders actively trading Tesla contracts, call options in particular, who gamble on share gains, volatility throughout the day is nearly a guarantee. On a 20-day rolling basis, earlier this month saw the greatest volume of such calls since April 2022, according to data gathered by Trade Algo.

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Yet, the stock's rapid rise and the sky-high expectations around it may, at least temporarily, prevent future advances.

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Part of the reason for this is that, according to data collated by Trade Algo, the stock is once again becoming pricey, selling at approximately 52 times forecast earnings, compared to 23 times for the Nasdaq 100 Index and 29 times for the NYSE FANG+ Index. Despite a recent break in the rise, Tesla shares are still trading near to the technical overbought level, indicating any significant increases will probably encounter some resistance.

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Toni Sacconaghi, an analyst with Sanford C. Bernstein, wrote in a note that while the analyst day "is likely to reveal some incremental insights on the next-generation vehicle platform," "it is unlikely that Tesla will be able to sufficiently address our concern surrounding timing."

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