TSLY ETF vs TSLA: Which is the better stock to buy?

Tesla (NASDAQ: TSLA) stock price has done well in 2023, helped by the company’s strong performance as its vehicle deliveries rose. The stock peaked at about $300 in July, which was much higher than its year-to-date low of $103.06. 

Recently, however, there are signs that Tesla has lost momentum as the stock has dropped by over 21% from its highest point this year. There are also concerns about the overall demand for electric vehicles (EVs) in the United States and other countries.

In a recent letter, thousands of dealers in the US warned that EVs were not selling fast enough. On average, dealers are staying with EVs for more than 100 days and Internal Combustion Engine (ICE) vehicles for about 55 days. 

Tesla has also had to severely cut prices in a bid to gain market share in the US and China. In all, it has lowered prices of its top vehicles by double digits this year. Other companies like General Motors and Ford have pared back their EV investments.

Meanwhile, Tesla unveiled its Cybertruck last week as it seeks to compete with the likes of Ford Lightning and Rivian. The event was quite underwhelming because of the overall range, with the dual motor all-wheel drive having a range of about 340 miles. Other trucks have longer ranges.

A key concern among investors is why Tesla should be valued as a growth company yet its growth is decelerating. In the most recent results, the company’s revenue grew by 8.85% YoY to $23.35 billion, missing estimates by $794 million. Its earnings per share of 66 cents was also lower than expectations.

The other key issue is that EVs have become commoditicised, especially in China, which has over 100 EV companies. Some of the biggest companies in the country are Byd, Li Auto, Xpeng, and Nio. While Tesla has a big market share in China, these cheaper options are making it hard to compete. 

Tesla lovers have different ways of investing in the company. The most basic one is to buy Tesla shares directly and benefit as its price rises. Over the years, people who bought the stock have been rewarded immensely as it has jumped by more than 20,000%. This makes it the best-performing automobile stock in the last decade.

The other option is to invest in Tesla derivatives like T-Rex 2X Long Tesla Daily Target ETF (TSLT), T-Rex 2X Inverse Tesla Daily Target ETF (TSLZ), and the YieldMax TSLA Option Income Strategy ETF (TSLY). The first two are leveraged ETFs that target the daily performance of TSLA stock.

TSLY, on the other hand, is an ETF that aims to provide monthly returns to investors in Tesla. It applies the concept of covered calls, which involves buying the stock and selling its call options. After selling a call option, the fund manager receives a premium, which they provide to investors through monthly distributions.

The premium is the biggest benefit of a covered call ETF. According to the website, the distribution rate of TSLY ETF stands at 60% while the 30-day SEC yield is at 3.93%. However, as I have written before, these advertised returns don’t tell the whole story because the yield differs from month to month.

TSLA vs TSLY returns

For example, TSLY ETF total returns have been weaker than TSLA even with its strong distributions, as shown above. While TSLA has grown by 29% in the past 12 months, TSLY has shed about 3.45% in the same period.

Past performance is not always a good indicator of future trends. However, I believe that Tesla has more benefits than TSLY, an ETF that has a gross expense ratio of 0.99%. If Tesla performs well in the future, TSLA will do better than TSLY.

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