Tesla needs to show a clear future

Tesla is always one of those companies you can't avoid, and the week ahead may include more chatter about the company and Elon Musk, its mercurial CEO, than many investors can stand.

The market will most likely open higher on Monday. Futures trading on Sunday suggested the Dow Jones Industrial Average and the Nasdaq Composite will open up 100 points. The gains seem to be coming after the stock market recovered Friday from heavy selling the day before related to banking issues.

For the week, the Standard & Poor's 500 Index rose 1.7%, while the Nasdaq was up 2.1%., The Dow closed ahead 1.6%. The huge rally erupted in April seems intact, but consumer stresses and frustration about slowing job growth could become a problem.

Tesla claims the limelight

Tesla, the electric-vehicle maker, reports third-quarter earnings after Wednesday's market close, and Tesla is the only company of 452 reporting this week with a market capitalization greater than $1 trillion  — about $1.5 trillion, in fact.

So, yes, people will pay attention to the earnings report, to the state of the electric vehicle market place and, of course, to Musk's promise that Tesla's Robotaxi will come to dominate the world.

The EV market is struggling, however, because of Trump Administration hostility and many buyers not able to afford the price.

Tesla shares also have been whipsawed by criticisms of Musk's involvement in the Trump Administration. The shares fell 54.5% between a December 2024 peak and its bottom in April. Tesla closed Friday at $439.91, up 105% from its April low.

The Street is estimating Tesla revenue at $26.5 billion, up 5.3%. Earnings may come in at 50 cents share down 50%.

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Tesla was up 6.24% on the week, second-highest among stocks in the so-called Magnificent Seven group. The shares are off 1.2% so far in October.

The question that needs to be asked if Tesla deserves its stock price and that trillion-dollar market cap. The stock price is 135 times the company's 12-month forward price-earnings ratio. (That is, the p/e ratio using expected earnings.) That is a rich valuation. The forward p/e ratio on the S&P 500 is just 24 times earnings.

If you listen to Musk and fans of the company and of its stock, the answer may be yes. Not because Tesla vehicles are selling like hotcakes. They face headwinds from increasing competition and the end of tax credits that helped fuel sales of electric vehicles in the United States.

Rather, Musk insists there's greater potential in Robotaxi its self-driving ride service.

The Robotaxi, the argument posits, will take over urban transportation. It's available now in Los Angeles, Phoenix, San Francisco, Austin and Atlanta. However, Waymo, its top competitor developed by Alphabet's Google, is already available in these markets.

Two other issues surrounding Tesla:

• What is the guidance for sales going forward? Tesla delivered 497,000 vehicles in the third quarter, up 7.4% from a year ago. But many of those sales came from buyers who wanted the $7,500 EV tax credits.
• The status of Musk's employment contract. A version approved this year is potentially trillions of dollars in shares. An earlier version was vacated by a Delaware court as deeply flawed because the process was dominated by Musk and the board its responsibilities to shareholders.

Bank worries erupt

Losses at two Western U.S. banks caused a major selloff on Thursday. Both companies report third-quarter results after their closes this week: Zions Bancorp of Salt Lake City on Monday and Western Alliance Bancorp of Phoenix on Tuesday.

Both surprised Wall Street with the disclosures, and the Dow Jones Industrial Average slumped 300 points on Thursday.

Both companies insisted problems were contained, and Zion fell 13% on Thursday while Western Alliance was off 11.8% Both rebounded on Friday thanks to an analyst update on Zion. But Zion fell 5.1% for the week, and Western Alliance was off 4.6% .

The longer-term view of the situation is this: The banking system nearly failed in 2008 thanks to horribly bad lending, particularly on real estate. In 2023, several more banks failed. And the trauma of those crises still weighs bankers, regulators and investors.

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More earnings due this week

At least 80 S&P 500 companies report earnings this week. The list includes five Dow industrial components:

• Tuesday: Coca-Cola and 3M
• Wednesday: IBM
• Thursday: Honeywell International
• Friday: Procter & Gamble

Worth paying attention to

In addition, look for these reports:

• Netflix, GE Aerospace, Texas Instruments and General Motors on Tuesday
• Southwest Airlines and AT&T on Wednesday
• Blackstone , T-Mobile , Newmont and Ford Motor on Thursday
• General Dynamics and HCA Health on Friday.

Other reports coming this week

Because of the government shutdown, there will be just one report this week: the Consumer Price Index report for September, which will be released at 8:30 a.m. ET by the Bureau of Labor Statistics. The report is needed to adjust payments to Social Security recipients.

Also coming this week are

• The report on Leading Economic Indicators, due Monday from the Conference Board.
• Existing home sales for September, due Thursday from the National Association of Realtors
• The final September look at consumer confidence from the University of Michigan. It's due Friday. The Michigan research has suggested deepening worries about jobs and the economy.

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