Analyst who correctly predicted Tesla’s stock decline renews his target

By | April 4, 2024

Elon Musk, CEO van Tesla, staat onder toenemende druk nu de EV-tegenwind opduikt.

<p>FREDERIC J. BROWN/Getty Images</p>
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Tesla CEO Elon Musk is facing mounting pressure as electric vehicle headwinds emerge.

FREDERIC J. BROWN/Getty Images

Tesla is benefiting from the widespread adoption of electric vehicles

Tesla’s Elon Musk is perhaps the most important factor in the success of the electric car industry.

Instead of focusing on the environmental benefits of replacing gas-guzzling cars and trucks with internal combustion engines with electric vehicles, he focused on performance and luxury.

Related: Analysts revise Tesla stock price targets after deliveries disappoint

The result was a range of electric vehicles with breakneck 0-60 speeds and eye-popping top speeds, vehicles that can outperform rivals like Porsche, Mercedes-Benz and BMW.

The Model S Plaid can reach 60 miles per hour in less than two seconds, and variants of its very popular Model Y, a midsize crossover SUV, and Model 3, a cheaper sedan with high-performance roots, can reach that speed in less than two seconds . four seconds.

Musk’s performance-oriented mindset is a stark departure from previous EV and hybrid gasoline/electric efforts, including General Motors’ EV1 or Toyota’s Prius, which focused on fuel economy.

Tesla has undeniably benefited from his approach, as sales and profits have soared over the past five years. In 2018, revenue was $21.5 billion and the company lost 38 cents per share. By 2023, revenue had more than quadrupled to $96.8 billion, and Tesla earned $4.30 per share on a GAAP earnings basis.

Not surprisingly, that rapid growth did not go unnoticed on Wall Street. The company’s share price has risen 657% since 2018.

Tesla is facing increasing headwinds in demand for electric vehicles

Investors who bought early and weathered the highs and lows have been handsomely rewarded, but the story isn’t as rosy for those who bought stocks recently.

Since last summer, Tesla’s share price weakness means many investors who have added shares to their portfolios since 2021 are likely underwater.

Related: Analysts see major strategy shift from Elon Musk after Tesla delivery debacle

Tesla’s mediocre performance is largely due to the fact that Tesla has become a victim of its own success. Following the increase in sales, profits and stock price, competitors such as Ford, General Motors, Mercedes-Benz and Hyundai have launched their own electric vehicles, eating into Tesla’s market share.

In the fourth quarter, total US EV sales rose 40% to 317,168 vehicles; Tesla accounted for half of that. That’s pretty good, but according to Cox Automotive, this is down from a 62% share in the first quarter of 2023.

The decline in market share – coupled with demand headwinds from higher auto lending due to Fed rate hikes and tighter consumer budgets due to inflation – has created strong headwinds against the company’s growth.

In the fourth quarter, Tesla’s revenue rose 3% year over year and earnings per share fell 40%.

And the situation doesn’t seem to be getting any easier for Musk. On April 2, Tesla reported that first-quarter deliveries totaled 386,810, down 8.5% from a year earlier and 20% from the fourth quarter of 2023. Analysts, who had already set their outlook reduced, had expected 455,000 deliveries, according to LSEG data.

Tesla’s price charts reveal a new price target

Bruce Kamich is a technical analyst who has used price and volume charts to understand stocks and markets for more than 50 years. His technical analysis allowed him to accurately predict that Tesla shares would rise to $300 before falling to $193, and he was able to warn of downside risks in January and February.

On April 2, Kamich re-evaluated Tesla’s daily and weekly charts for updated insight into what could happen next for Tesla stock. He also calculated new price targets using daily and weekly point-and-number charts. If you’re a Tesla fan, you’ll probably be disappointed with his new take.

More Tesla:

“Stock prices have fallen since July. TSLA is trading below the declining 50-day moving average line and below the negatively sloping 200-day moving average line,” Kamich said.

“The daily volume histogram has weakened since June. The On-Balance-Volume (OBV) line has struggled since July. The Moving Average Convergence Divergence (MACD) oscillator has spent most of its time below the zero line since August .”

Balance sheet volume is essentially a running total of upside minus downside volume, while MACD measures momentum.

Kamich would like to see improving buy-to-sell daily volume and positive MACD momentum to have the belief that the path of least resistance for a stock is higher.

The point-and-number graph calculations are also not encouraging. In February, the daily P&F chart revealed a $150 target. But now that target has dropped to $143. The weekly P&F chart target is worse and indicates a downtrend to $117. Ouch.

Of course, P&F charts aren’t guaranteed (nothing is), and they don’t provide insight into when a stock might reach a target, so they should be viewed as just one piece of the puzzle.

Nevertheless, the targets next to Kamich’s evaluation of the price and volume charts are not very bullish, suggesting that the risk-reward balance, at least in the short term, is not very favorable.

“Tesla used to be considered a buy-and-hold stock, but now the tables have turned and it looks like a ‘sell on any bounce’ stock. Avoid the long side of TSLA as further declines are expected,” concludes Kamich.

Related: Veteran fund manager picks favorite stocks for 2024

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