$Tesla, Inc.(TSLA.US)$ stock chart produced the first bearish “death cross” pattern in more than two years on Friday. The last time such a sign occurred, TSLA stock fell more than 40% within 65 days.

The 50-day moving average (DMA), one of the most-followed technical indicators of trends in price movement, fell to $629.66 from $630.44 at Thursday’s close. The 200-DMA, a key indicator by traders and market analysts for determining overall long-term market trends, rose to $630.76 from $629.61.

That resulted in the snapping of a 20-month streak in which the 50-DMA has closed above the 200-DMA. Technical analysts know this point as a “death cross,” which often precedes further losses for the stock.

There are several factors for this bearish sentiment. Automakers are aggressively entering the electric vehicle race, looking to take advantage of the industry’s future growth trajectory.

Meanwhile, China has been the world’s largest new energy vehicle (NEV) market by sales volume since 2015, and it’s a key battleground for Tesla. Elon Musk has had a great relationship with the country. But local challengers like $NIO Inc.(NIO.US)$, $XPeng Inc.(XPEV.US)$, and $li Auto Inc.(LI.US)$ are slowly gnawing away at Tesla’s market share.

Tesla’s stock hasn’t closed at a record since Jan. 26. Friday was nearly 26% below its high of $883.09. Meanwhile, all of the FAANG stocks have set fresh records in the past two weeks. Clearly, this is one of the rare occasions Tesla bulls have had to eat humble pie.

China Missteps Weighing on TSLA Stock Sentiment

TSLA stock has outperformed the S&P 500 index by 1292.4% and its sector by 1242.8% over the past five years. But even multi-bagger stocks aren’t immune to major drawdowns.

Over the last three months, TSLA stock is down 6.4%. There are several reasons to explain the drop. China is the largest new car market in the world and the largest market for new EVs. Tesla’s unparalleled success in China has helped Musk become among the world’s richest people. 

Looking ahead, China appears to hold the key for Tesla and most EV stocks. With that in mind, Tesla’s recent missteps in China are weighing on investor sentiment. The company was roundly criticized for handling a brake issue and had to issue a technical recall to fix an issue with its cruise control.

The cars didn’t have to go into any service shop for a fix, and the issue was handled through an over-the-air software update. Still, Tesla sells approximately 30% of its cars in China, made at its Shanghai factory. PR issues in such a big market will undoubtedly have an impact.

Inflation Fears and Competition

The consumer prices index rose at an annual rate of 5% in May, up from 4.2% in April and the highest since August 2008. This is a natural consequence of the economy reopening and people returning to work.

It is also causing a broader correction in tech stocks. Investors value these stocks by how much future cash flow these companies can generate. As inflation goes up, the value of those future cash flows declines.

In addition, traditional automobile giants are all now firmly in the EV game. $General Motors Co(GM.US)$, $Ford Motor Co(F.US)$ and $VOLKSWAGEN A G(VWAGY.US)$ are making significant inroads in the space, expanding their product line and investing heavily in carving out market share for themselves.

$Amazon.Com Inc(AMZN.US)$ is doing its thing with delivery vans with privately held Rivian. That collaboration is expected to produce up to 100,000 electric delivery trucks. The first 10,000 by the end of 2022, and the remaining 90,000 by 2030.

All of that means one thing, more competition for Tesla in the coming months. And when you add a semiconductor chip shortage affecting several industries, including the EV sector, you will understand why investors are taking their profits and investing elsewhere.

Before moving to the next section, it is also important to highlight recovery plays. For the last year, several industries bore the brunt of this crisis. However, these companies are emerging from the shadows and are poised to do exceedingly well in the current fiscal year and beyond. Undoubtedly, value investors turn their attention toward these stocks, thereby reducing their holdings in risky bets like Tesla, another factor why TSLA stock is trending downward.

First Time for Everything

Tesla, the bellwether for the EV industry, is in dire straits for the first time in a long time. You will not hear this often. But it’s best to let TSLA stock cool off a bit more before adding more to your portfolio.

Even the best stocks go through these phases and I am sure TSLA bulls will not be too concerned. But still, in the short term, this is there are too many red flags.