Tesla dip buyers face a treacherous path amid bearish signals

Tesla Inc. has shed about a quarter of its value in less than two months, amounting to some $400 billion. Yet for investors thinking about diving into the electric-vehicle maker’s shares, Wall Street has a message: buyer beware.

The stock is the worst performer among its megacap peers this year, and the third-weakest in the Nasdaq 100 Index. However, the slide likely hasn’t gone far enough, according to analysts who track the business and say the shares of Elon Musk’s carmaker remain expensive given deteriorating sales across key markets. 

Chart-watching strategists who analyze trading patterns to gauge a stock’s trajectory are also wary, even after Tesla shares rallied the past couple of days. What it all adds up to is that for investors betting the stock will soar anew, like it did in the weeks after President Donald Trump’s election victory, the prospects are decidedly mixed.

“I don’t think this stock has bottomed yet, and probably has one more move down, which could happen over the next one or two weeks,” said Mark Newton, head of technical strategy at Fundstrat. He sees scope for it to tumble back toward where it stood after the US election, to around $314, or some 12 per cent below current levels.

Tesla shares almost doubled from early November through mid-December as investors bet that Musk’s proximity to the president as a megadonor and now right-hand man would ease the regulatory hurdles for the company’s ambition of creating a fully self-driving car.  

In the background, however, the outlook for its EV business was weakening. In its Jan. 29 earnings call, Tesla dialed back expectations for vehicle-sales growth this year. Then came a string of disastrous sales figures early this month, including from Germany, France, China and California, which helped deepen the stock’s dive from the record close touched on December 17.

Hype Awaited

There may not be a substantial trigger for a rebound anytime soon, either, in the form of updates on its efforts to produce a self-driving vehicle, says Evercore ISI analyst Chris McNally. 

“Not much more hype can come out on full-self-driving/autonomous vehicle” until June, when Tesla has said it will start its robotaxi service, he said. 

Tesla shares currently trade at 119 times projected earning. The average for the so-called Magnificent Seven stocks, the cohort of the biggest US technology companies that includes Tesla, is 30. For the S&P 500 Index, it’s 22.

“There is an awful lot of future growth priced into the company,” said Steve Sosnick, chief strategist at Interactive Brokers. The valuation implies a roughly 30 per cent jump in the company’s earnings next year, he added. Analysts on average estimate 2025 profits will climb 19 per cent, according to data compiled by Bloomberg. 

“The sky-high valuation means that any disappointment or anything that punctures that faith will mean there is much more room for the stock to fall before value-oriented buyers might step in,” Sosnick added.

That outlook explains the trend in options market, where traders have grown less bullish. In the past few days, volatility has also started to pick up, signaling that traders were starting to pay more for contracts that protect against a slide.

“The fundamentals still matter for the stock market, and this stock is still trading above fundamental outlook,” said Matt Maley, chief market strategist at Miller Tabak + Co. “We are expecting more weakness in Tesla over time in the coming months, even after this short-term bounce.”