Tesla is down 32% in 2024! Why??

Stock Movement:-

Tesla has had a terrible start to 2024 as the company stock has lost a staggering 32% in less than 3 months of the year!

Tesla’s stock was one of the worst affected in the March 2023 US Banking Crisis. Another reason for the decline was the reduction in prices in the US. Tesla did so to drive up demand and increase sales, but it did not suit well with investors. As market sentiments soured, Tesla’s stock tanked almost 13% before buyers came in.

A second reason for the decline was reports that stated that Tesla would not be receiving EV batteries from BYD. This resulted in panic selling but reversed when Elon Musk claimed it to be a lie. Moreover, Tesla’s stock was upgraded by Moody’s as its China sales were booming, helping the stock reclaim its support at $188.84.

Buying continued as Tesla’s stock grew and it rechallenged its resistance at $209.64. However, the level proved to be too much for sellers as the stock fell back down. The stock broke the support at $188.84 as sequential sales growth of the company was modest despite price cuts, raising concerns about rising competition and a bleak economic outlook.

Although the stock fell through the support, it hovered around such a level before ultimately declining to its next support at $161.19. The stock tumbled almost 10% in a single day as Elon Musk announced that the company would continue cutting prices to increase demand, translating to a sharp hit to Tesla’s margins.

The stock fell through the $161.19 level briefly as market sentiments turned adverse, but the stock recovered shortly when markets normalized. Trading remained muted in the first half of May, but Bulls took over the stock in the second half as Tesla’s stock jumped for 5 consecutive trading sessions! The rally came on account of Elon Musk’s announcements which included him spending less time on Twitter and more time on Tesla, the launch of its ads, updates on the company’s self-driving cars, and a greater focus on AI! Moreover, China announced a multi-billion dollar tax break for EV makers, further helping Tesla. 

Furthermore, Ford and General Motors struck a deal with Tesla to gain access to its EV charging network. The S&P 500 gained almost 6% in a month as Tesla was riding on the bullish rally, breaking through two resistance levels, gaining 66%, and adding over $200 billion in value! The stock challenged its resistance at $278.37 but could not go beyond as it fell back down.

The sharp gains earned by the company elicited some correction in the stock which was surging to trillion-dollar levels. The stock fell over 6% when several brokerages downgraded it from ‘Buy’ to ‘Hold’ as the rally was disrupted. However, the rally resumed once again in early July with the stock jumping 7% in a single day!

Tesla’s price-cutting measures, which were frowned upon by investors, had paid off as the company reported record sales in Q2CY23. The company sold 466,000 vehicles in the quarter, significantly higher than estimates and more than double the sales reported in the corresponding quarter last year.

The stock broke through its resistance at $278.37 as it climbed to reach almost $300 per share, a level it had fallen from 9 months ago. However, the stock lost its momentum soon when the company’s quarterly earnings disappointed investors. Although revenues surged 47% while Net Income and EPS grew 20% each, investors were disappointed by the 3% decline in operating income and sharp decline in gross margins. The stock fell 10% and fell below its support at $278.37 as its trend reversed.

Overall markets witnessed a significant correction for the remainder of July and most of August as Tesla tracked the market’s movement and fell 27% in a month! Tesla fell through its support at $230.05, but that level seemed attractive as buyers rushed in and pushed the stock back up this level.

The stock resumed its climb as the movement was slow initially. However, BYD’s staggering growth in China and robust demand for EVs in Asia’s largest economy boosted investor sentiment for Tesla as the stock gained from the optimism. Moreover, the stock surged over 10% in a single day as it retested its resistance at $278.37 following upgrades by multiple brokerages.

However, the resistance proved to be too much for the stock once again as it fell back. Although the stock saw some sharp corrections, it remained range-bound between its immediate resistance at $278.37 and its immediate support at $230.05 until late October. The share broke its support when its third-quarter results disappointed investors. The company revenues fell 9% while its EPS tanked over 27%, resulting in a 9.3% decline in a single day!

The share briefly broke its next support at $209.64 when Panasonic, a long-time battery supplier of Tesla, reduced its cell production in Japan, sparking concerns about falling EV demand. Further downgrades of Tesla’s stock kept the stock between its resistance at $230.05 and its support at $209.64. 

However, US inflation cooled down in mid-November 2023 as market sentiments were positive and the stock jumped 6% to breach its resistance at $230.05. Tesla’s unit sales improved as its China wait times fell significantly, giving the stock a boost. US markets were witnessing another Bull Run as Tesla moved with the market, reclaiming the $260 level by the end of December before declining.

The first few sessions of 2024 were red for US markets, but market sentiments turned positive. The S&P 500 was climbing up, reaching newer highs, but Tesla was declining. The fall which began in late December continued in 2024 as overall weakness in the stock resulted in a prolonged bearish sentiment which took the stock down 17% in less than a month.

The stock fell even further as it lost the $200 level in late January when Elon Musk hinted at lower sales in 2024 despite the lower prices that were squeezing the company’s margins. Moreover, it was also revealed that Elon Musk had close personal and financial connections with Tesla’s BoD, fueling concerns about poor governance and oversight at the company.

Although the S&P 500 was hitting new highs due to the AI frenzy, Tesla was range-bound throughout February. However, when March began, another bearish pressure hit the stock as it fell over 7% when Elon Musk announced a fresh round of price cuts and discounts. That sent the stock below its support at $188.84 as it kept declining.

The stock took support at $161.19, hitting its lowest level in almost a year as BYD, the company’s direct Chinese competitor was aggressively pushing into emerging markets.

Analysis:-

Technically, the stock is currently trading above its 5-day but below its 20, 50, 100, and 200-day averages. Moreover, its RSI is currently at 45.27, indicating that the stock is neither overbought nor oversold.

The chart shown above compares the movement of Tesla’s stock in comparison to its peers and the overall market. In a period of one year, the stock of Tesla has seen minimal growth. When the broader market saw a gain of over 28%, Tesla only grew 1.41%, worse than General Motors but better than Nio, Ford, and Harley Davidson.

Fundamentally, the company’s latest quarterly revenues were not up to the mark. Its total revenues saw a marginal growth of 3% YoY to $25.2 billion where automotive revenues grew only 1%. Operating income tanked 47% as the company’s operating margin fell over 750 bps! Net income and EPS more than doubled to $7.9 billion and $2.27 per share respectively.

What’s the future outlook??

Tesla’s business is facing a few immediate challenges. Due to the multiple price cuts announced by the company throughout 2023, the company’s operational metrics are a mess. Moreover, China’s BYD outpaced Tesla as the world's largest EV seller (by volume) in the latest quarter as Tesla's current global EV market share is 19.9% while BYD has climbed up to 17.1%! 

Tesla’s stock appears to be in a technical downtrend. Ever since Bulls lost momentum in late December 2023, the stock has been making lower highs and lower lows, a textbook sign of a downtrend. The stock has tested its immediate support at $161.19 multiple times in 2023 alone as it appears to be a strong support zone. The stock recently rebounded from the support as it was making its way to its resistance at $188.84, but Bulls lost momentum midway as the stock fell back. Thus, rechallenging or breaching the resistance might be difficult for the stock in the near term.

However, Tesla’s business conditions are improving. China’s economy is recovering, and Tesla, with a 12% market share in the country, will gain from it. Moreover, the company is raising the prices of its products in China and Europe, indicating that it is done with its price war, which is good news for its operational metrics. 

Market research suggests that the global EV market was valued at $388.1 billion in 2023 and was expected to grow to $951.9 billion by 2030, translating to a CAGR of 13.7%! Tesla has several fundamentally dominant factors that would make it the greatest beneficiary of such an industry growth:-

• It manages the world’s largest EV fast-charging network.
• Tesla holds almost 20% of the global EV market.
• It has a market share of 56.3% in the US!
• It has excellent brand value, patented EV tech, and an R&D-focused approach
• The company is also making strides in its self-driving cars while also focusing on robotics and AI!
• Finally, Tesla’s latest model ‘Cybertruck’ is a huge hit with customers. The company is actively ramping up production to meet high demand for it although it was priced 50% more than initially announced!!

Thus, although Tesla appears to be a good investment at the existing levels, it could witness range-bound movement in the near-term but its long-term prospects appear to be good.