Tesla Inc's disastrous sales report on Tuesday and aggressive selling of shares by traders in the months leading up to it sent the stock price plummeting toward a critical level for investors.
The electric vehicle giant's share price has plummeted more than 33% this year, making it the worst performer on the Nasdaq 100 index and the second-worst performer on the S&P 500 index. The shares, which traded for around $400 in January As of 2022, they are now at $166 and falling. Therefore, technical analysts are watching the key $150 level to gauge whether the stock will find much-needed support.
“Not only is this level where last April's low enters, but it is also where we find the bottom of an eight-month downtrend channel,” said Matt Maley, chief market strategist at Miller Tabak + Co., whether it will make it maintaining the level or not will be extremely important for the action in the coming days and weeks.”
Shares fell as much as 1.6% Wednesday morning in New York.
Most of Tesla's recent destruction reflects concerns about declining demand for EVs. The company's dismal first-quarter delivery numbers missed even Wall Street's lowest estimate by a mile, only exacerbating those concerns as it posted its first year-over-year sales decline since the early days of the Covid pandemic. Stocks ended Tuesday down 4.9% on the news, making it by far the biggest contributor to the Nasdaq 100's 0.9% decline.
With this latest decline, some on Wall Street say stocks are starting to show signs that the sell-off has reached an extreme.
“It seems like there is already a lot of bearish sentiment and that we are approaching a very good risk-reward entry point,” said Mark Newton, global head of technical strategy at Fundstrat Global Advisors. “Short-term support is at the March lows of $160.50 and below that would likely lead to a move to $152-$155, which would make Tesla quite attractive from a countertrend perspective to buy dips.”
Even with Tesla's terrible first quarter, the company still has a high market valuation. The stock is priced at about 59 times forward earnings, down from December when it was about 66 times.
From here, the question for investors is which way to go Tesla shares they are going. And this is not easy to understand.
Yes, the sale has been intense, suggesting it may be time to consider buying. But the big disconnect between first-quarter deliveries and analyst estimates suggests that Wall Street expectations may have to fall further, which would call the current valuation into question. Profit expectations for 2024 have already fallen 48% in the last 12 months, while revenue estimates have fallen 19%.
Tesla's existential struggle right now is convincing investors that there is still enough demand for its vehicles to fuel the aggressive growth projections that are the basis of its massive market capitalization. At a time when Americans are opting for cheaper cars, even among gasoline offerings, it is proving difficult to find consumers willing to pay more for an EV, especially with issues related to the charging ecosystem, battery life and used car values.
This explains why short interest in the stock reached its highest level of the year at 3.9% of the free float at the start of the week, data from S3 Partners showed.
While slowing EV growth is a problem for all automakers, Tesla suffers most because it doesn't produce gas-powered vehicles. And its huge market capitalization – $531 billion at Tuesday's close – leaves very little room for error. General Motors Co, for example, has a market valuation of $52 billion, while Ford Motor Co.'s is $53 billion.
“Based on technical data, we could see support for shares at the April 2023 lows – around $153.75. If the company can't maintain that, there won't be much support until the 2022 lows,” said David Mazza, chief strategy officer at Roundhill Investments. “The challenge is that there is not yet a valuation argument to be made, especially with lower forecasts for the coming quarters.”