The boom-and-bust cycles are not new to Tesla (NASDAQ 🙂 investors. The electric car manufacturer is known for its fast movements and has become one of the most speculative mega stocks.
That pattern is evident again after Tesla & # 39; s astonishing performance over the past 12 months. The stock is in a bearish period after hitting a record high of $ 900.40 on Jan. 27. It closed about 17% lower from that level on Wednesday. Yesterday it lost an additional 8% on the day to close at $ 682.22.
Tesla Weekly Chart.
That weakness comes after a period of rapid rise in 2020, causing the stock to rise by more than 700%. For investors on the sidelines, the big question is whether this weakness offers an opportunity to buy Tesla. Or is it the start of a much deeper correction?
If you look at the bigger picture, nothing has changed when it comes to Tesla & # 39; s lead in the electric vehicle market. The California-based electric car manufacturer is still the best bet in the golden age of the electric car that has just begun.
In the past year, Tesla has nearly hit the 500,000 vehicle target and joined the Index after five consecutive quarters of profit. These fantastic developments have set the stage for the automaker's further expansion in China, Texas and Germany to ramp up production of its more mass-market models to meet rising global demand.
With this great backdrop for growth, however, comes the peculiar personality of the CEO, Elon Musk, who never misses a chance to divert Tesla's attention from making and selling cars.
Tesla & # 39; s downturn this week was fueled in part by his hobby of moving the markets through his Twitter (NYSE :). He recently invested $ 1.5 billion in Tesla & # 39; s cash, which he says has a bright future. Both Bitcoin and Tesla's shares started to decline this week following his comments last weekend that Bitcoin and its smaller rival's prices "seem high."
This is what Wedbush analyst Daniel Ives wrote in a note to clients:
"Tesla is an EV game entering the golden age of electric vehicles and there is a continuing concern that the Bitcoin sideshow could overshadow the overall EV growth story unfolding for Tesla in 2021 and beyond."
Excess Inventory
Assuming Bitcoin is a short-term distraction with no direct impact on Tesla & # 39; s competitive advantage, there are other factors that also play a role in the mitigation of the enthusiasm of investors about its stock.
Tesla has lowered the price of its various models 14 times this year in markets including China, Japan and France, according to GLJ Research LLC founder Gordon Johnson, who has a sales rating on the stock. Johnson wrote in a note quoted by Bloomberg News this week:
"When we consider that Tesla had excess inventory in the fourth quarter of 2020 and was never able to sell its production capacity, we see that the company currently has limited demand rather than limited production."
With Musk's usual distraction, there are also growing concerns that the EV market won't be as easy for Tesla as many bulls think. Traditional automakers like General Motors (NYSE 🙂 and Ford (NYSE 🙂 are all-in on the electrification race, while Apple (NASDAQ 🙂 is actively looking for a partner in its EV ambitions. Speculation about the role of the established auto industry in an Apple car project has spread since Hyundai (OTC 🙂 said it was in talks with the iPhone maker last month.
In the startup space, Lucid, one of the most promising startups trying to follow Tesla & # 39; s lead in electric vehicles, announced this week a merger with Churchill Capital IV Corp (NYSE :), a special takeover company. Run by Peter Rawlinson, the engineer behind Tesla & # 39; s Model S, Lucid & # 39; s first car offers better battery efficiency than its competitors, and car delivery is expected to start later this year.
Bottom Line
There are many factors that are stealing some shine from Tesla stock after a great year. The continuation of such a powerful run is highly unlikely when investors shun growth stocks in favor of cyclicals and when competition in the EV market intensifies. We think there will be a better entry point in the coming days for those looking to play the Tesla trade and keep this stock in their long-term portfolios.
