The electric vehicle (EV) sector experienced a shockwave when industry titan Tesla (NASDAQ:TSLA) reported a significant decline in its stock price, casting doubts over the Consumer Discretionary and Battery Value Chain sectors. The company’s shares plunged 13.64% to $183.25 at Friday’s close after reaching a nine-month low on Thursday following the release of lackluster fourth-quarter results.
Financial Instability at Tesla
Tesla, America's premier electric car manufacturer, disclosed revenues below expectations along with shrinking margins for Q4 2023. In an increasingly tough economic landscape, Tesla’s sales growth slowed down significantly with only a modest 3% rise to $25.2 billion—falling short of anticipated figures ($25.6 billion). This reflects the lowest annual growth rate in three years for the company, indicating signs of dwindling momentum.
Further alarming investors was news that gross margin had slipped from 19.3% to 17.6% over the year due to aggressive pricing strategies amid falling demand and rising competition, particularly from China-based manufacturers. CEO Elon Musk’s forecast of "considerably lower" sales growth rates in the future exacerbated market reactions resulting in an overnight loss of $80 billion in market capitalization.
Consequences on ETFs
The fallout from Tesla's performance has widespread repercussions especially impacting ETFs heavily invested within both consumer discretionary and battery value chain segments. Tesla's downturn can greatly sway these ETFs given its significant position within their portfolios thereby prompting potential reconsideration of investment approaches amidst uncertainty surrounding EV markets. ETFs linked with this sector may face bouts of high volatility triggered by shifts within Tesla's marketplace standings.
How to Invest in Battery Value Chain and Consumer Discretionary ETFs
To gain exposure to the Battery Value Chain and Consumer Discretionary sectors via ETFs, investors can buy shares of an ETF that targets these specific industries. One approach is to select an ETF with Tesla among its primary holdings. By investing in such an ETF, one gets access not only to Tesla but also to other companies within the same sector—providing diversification while potentially mitigating risk.
For instance, the Invesco Consumer Discretionary S&P US Select Sector UCITS ETF (XLYS) has invested 19% (as of 15th December 2023) of its assets in Tesla (TSLA); over the week this fund witnessed a decline of 2.13%, whereas the S&P Consumer Discretionary index dipped by 1.40%.