Tesla Stock: Avoid in 2024
Technical analysis
From Jul 2023, Tesla has been trading in a flag pattern as shown in the daily chart (Fig. 1). In Dec 2023, it was stalling and struggling to rise. Then it appeared to have broken out of the pattern. Or has it? To confirm, we look at the weekly chart in Fig. 2.
In the weekly chart (Fig. 2), you can see another flag pattern is formed. Tesla is still trading below the Downtrend line 2, which joins the Sep 2022 and Jul 2023 peaks. It didn't breakout of the flag pattern or downtrend line. This confirmed that it was a false break.
Tesla may fall to the MA200 around 231-235 where it may rebound to the flag pattern resistance in the daily chart (Fig. 3). Then it may get rejected there. After which, it may breakdown below the MA200 and fall to the flag pattern support. A rebound may occur there. It may rise to the resistance around 206. Then it may fall and break down below the flag pattern. This would be bearish and substantial downside may happen.
Fundamental analysis
In recent months, Tesla has been wrestling with a sluggish macro environment - including rising interest rates, high inflation, and supply chain disruptions, all of which have driven consumer demand lower.
In Q3 of 2023, it reported sales of USD23.35 billion and adjusted earnings of USD0.66 per share. Analysts forecast Tesla's revenue at USD24.1 billion, while earnings estimates stood at USD0.73 per share. Tesla failed to beat revenue and earnings estimates for the first time since 2019.
While Tesla increased sales by 9% year over year, its earnings narrowed by 44% in Q3. Its product costs at new factories were higher than those at legacy manufacturing facilities, resulting in gross profits falling by 22% compared to the year-ago period. Moreover, it spent USD1.16 billion in research and development (R&D), an increase of almost 60% year over year as Tesla doubled the size of training compute for its artificial intelligence (AI) model.
These costs meant Tesla ended the third quarter with an operating margin of 7.6%, down from a margin of 17.2% in the prior-year period. While gross margins fell 18%, operating expenses rose by more than 40% year over year in Q3 of 2023.
A combination of rising costs, heavy investments in R&D, and other growth projects resulted in a decline of 74% in Tesla's free cash flow, which stood at USD848 million.
Tesla enjoyed a first-mover advantage for several years, allowing it to lead EV production globally. But in the last few years, a slew of established automobile manufacturers such as Ford, General Motors, BYD, Toyota, and Volkswagen, along with new entrants including Nio, Xpeng, Lucid Motors, and Rivian, have all entered this rapidly expanding market.
Despite an increase in competition, Tesla accounts for roughly 50% of the EV market in the U.S. and almost a fifth of global shipments. That said, the EV heavyweight has cut its vehicle prices in the last few quarters to accommodate a challenging economy and fight off the competition.
Historically, Tesla stock was valued at a premium due to its robust growth in shipments and high profit margins. But as the bottom line has narrowed in the last two years, it's possible that Tesla's valuation will be far more conservative going forward.
The Cybertruck was expected to be the next key driver of revenue growth. But it's priced too high, has production issues and can't reach volume production.
Tesla has limited models and they are looking stale. The USD25k car is expected to be launched by the end of 2024. But it will only be on the roads in early 2025.
After saying that Tesla will achieve full autonomy since 2016, Tesla's robotaxi still looks unable to get off the ground in 2024.
In a span of 2 months, Tesla has lost 2 key executives. Tesla's head of the Dojo supercomputer project, Ganesh Venkataraman, left the company in Nov 2023. In early Dec, Tesla's AI Infra & AI Platform Engineering Manager Tim Zaman said in a post on X that he is joining Alphabet unit DeepMind. These indicate that Tesla is having some setbacks with its Dojo and AI projects. AI is key to Tesla's autonomous driving ambitions, and the technology is used to develop and deploy autonomy on scale in its EVs and Tesla bot, among other things. The Dojo supercomputer is used to train Tesla's fleet of autonomous vehicles. Cathie Wood, which has a USD2,000 price target for Tesla shares by 2027, sees robotaxis contributing to the bulk of the valuation upside for Tesla.
Currently, its Optimus humanoid can only do simple tasks.
Out of the 26 analysts tracking Tesla, 7 recommend "strong buy," 2 recommend "moderate buy," 14 recommend "hold," and 3 recommend "strong sell." The average target price for the stock is USD$237.68.
However, Roth MKM has a Street-low target price of USD85, indicating a potential downside of 64% for Tesla stock. In a post-earnings note, analyst Craig Irwin reiterated that price target alongside a "hold" rating, and argued that Tesla's premium valuation appears to rest on the "specious assumption" that none of its competitors' EV models will gain traction over the next year.
Tesla had a stellar year in 2023 with the AI hype. It gained 90.9%. Will Tesla be able to outperform again this year or repeat its 2022 performance? While Tesla may not repeat 2022 with a 64-65% downside, the weak outlook and challenging environment may still result in substantial downside in Tesla stock in 2024. Avoid.
Sources:
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bullrider_21 OP : Tesla is off to its worst start to any year - ever. It lost more than USD94 billion in market valuation in just the first 2 weeks of 2024. It's not hard to figure out why, as the EV maker has been pounded by a barrage of negative news: an about-face on EVs from the car rental giant Hertz, yet another price cut for its cars made in China, and signs of rising labour costs.
All of this comes in the face of stagnating growth in demand for EVs, especially in the US.
bullrider_21 OP : The hit to Tesla's market capitalization to start the year is the biggest the company has seen over a similar period since it went public in 2010. In percentage terms, Tesla's 12% drop since the start of Jan is the worst since 2016, when the stock fell 14% over the first 9 trading days of the year.
Last year, the stock was the 8th best performer in the S&P 500. So far this year, it’s the 8th worst.
bullrider_21 OP : Musk is taking a big hit personally. The world's richest person, who gained more wealth in 2023 than anyone else on the planet, has seen his net worth shrink by USD23 billion so far this year, according to the Bloomberg Billionaires Index.
Musk regained the top spot on Bloomberg's wealth index last year, overtaking Bernard Arnault, but now Jeff Bezos is rapidly closing in, with USD179 billion to Musk's USD206 billion as of Fri's close.
The bulk of Musk's net worth comes from his 13% stake in Tesla and about 304 million exercisable stock options. He also owns about 42% of SpaceX, which is valued at about USD53 billion, according to Bloomberg's wealth index.
bullrider_21 OP : Tesla shares are priced for perfection, that also made them highly vulnerable to big reactions to any negative news.
Tesla has been promising truly self-driving vehicles for years, and most experts say the technology is still years, maybe even decades, away.
"Tesla has not been able to deliver on fully autonomous driving and AI promises, which are already embedded in the valuation," Spear's Delevska said. "Being simply another automotive manufacturer is not going to cut it for a USD750 billion valuation."
bullrider_21 OP : A Tesla bull, non-TA guy, always say TA is confirmation bias. That's absolute rubbish. The Tesla bull always post articles favouring Tesla and bad things about Tesla rivals. You can see that I made my prediction at the start of the year. It is turning out like I predicted.
Confirmation bias only happens when it's over and you use TA to review. I made my prediction way in advance before it happened.
MonkeyGee : Omg, 2025 will be even worst for Tesla. I predict that they will be forced out of China in 2025.
bullrider_21 OP MonkeyGee :![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
You may be right.
bullrider_21 OP : Tesla's USD25k car will be launched in mid 2025. But BYD is already selling its Seagull for USD21k overseas. And it's not using the cheap sodium-ion battery. BYD will have plenty of time to capture the mass market before Tesla's launch.
MonkeyGee : I was just analyzing TSLA, I see the same thing you are seeing. It will need a miracle for Tesla to turn an uptrend any time soon with the economic and political headwind!
MonkeyGee bullrider_21 OP : Tesla Bull must be high on GOD!
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