Tesla (NASDAQ: TSLA) is no longer the worst-performing stock in the S&P 500 this year, thanks to a recent surge higher. The stock, which was down over 40% year-to-date ahead of its earnings, had ensued a steep downtrend on the year and faced several challenges, including softening demand in the U.S. However, following earnings and a surprise visit to China by Tesla CEO Elon Musk, shares have broken the downtrend and reclaimed some critical moving averages. 

So, let’s take a closer look at the recent catalysts behind the stock’s surprise surge higher in recent weeks, as a bottom is all but confirmed for the automotive and AI giant. 

Earnings and a China Visit Fuel TSLA Surge

Given Tesla’s performance ahead of its most recent earnings report, having faced challenges in Q1, such as weakening demand and increased global competition, the anticipation for the report was enormous. Investors needed to hear signs of a turnaround and proactive measures by the company. 

The company reported a revenue of $21.3 billion, marking a 9% decrease from the first quarter of 2023, while automotive revenue saw a 13% decline from the previous year, totaling $17.4 billion. Furthermore, Tesla's gross profit margin decreased from 19.3% to 17.4% compared to a year ago. Net income experienced a significant tumble, dropping by 55% to $1.12 billion, or 34 cents per share, from $2.54 billion, or 73 cents per share, a year earlier, missing the consensus estimate of around 48 cents per share. Additionally, free cash flow, a crucial metric, plunged to negative $2.5 billion, down from $441 million a year earlier and $2.06 billion in the fourth quarter.   

Despite the weak results, Tesla's shares finished up over 13% in the after-hours session. The recent rebound in value can be attributed to two significant catalysts. First, despite a decline in revenue and profit margins reported in its first quarter report, including a substantial 55% drop in net income, the company managed to provide insight into its plans for launching new, more affordable vehicles in its earnings report. 

Tesla announced an accelerated timeline for releasing these models, which will utilize existing manufacturing lines, thus avoiding the need for costly new infrastructure. This news was welcomed by investors and buoyed investor confidence, resulting in a surge higher following the report. 

Additionally, day’s later, Elon Musk's surprise visit to Beijing proved fruitful, as Tesla secured agreements with Chinese officials and tech giant Baidu, facilitating the potential rollout of Full Self-Driving (FSD) technology in China. These developments mark a substantial stride for Tesla in a crucial market, enhancing its revenue prospects amidst recent challenges.

The Sentiment Remains Negative on Tesla

Ahead of its earnings, Tesla's sentiment was the lowest it’s been in months, as the consensus rating was downgraded from hold to reduce from the previous month. Tesla was and remains one of the most downgraded stocks. The overwhelming bearish sentiment and significant short interest might have exacerbated the surge higher following the earnings results. 

Following earnings and the latest developments, the stock’s consensus rating has improved from reduce to hold, based on thirty-three analyst ratings. However, despite the upgrade from reduce to hold, the consensus price target has been reduced month over month, from $202 down to $185.90, forecasting just 3.27% upside. 

Most recently, on April 29, Evercore ISI lowered its target for Tesla from $155 to $145, forecasting over 22% downside at the time of the report. On the same day, however, analysts at Wedbush reiterated its rating as outperform, with a $275 price target on the name, close to the high estimate. The most recent action was taken by Cantor Fitzgerald, who, on May 2, initiated coverage of Tesla with an overweight rating and target of $230, predicting almost 30% upside at the time of the report. 

The article "The Latest Development's Driving Shares of Tesla Higher" first appeared on MarketBeat.