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Tesla (TSLA) Stock Tops 200-Day SMA: Should You Buy Now?
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Electric vehicle (EV) giant Tesla (TSLA - Free Report) has reached a key support level from a technical perspective. Yesterday, the stock crossed its 200-day simple moving average (SMA), indicating a potential long-term bullish trend. The stock popped up 5.24% yesterday to close the session at $207.83.
TSLA Overtakes the 200-Day Moving Average
Image Source: Zacks Investment Research
The recent price action follows a high-profile interview where Tesla CEO Elon Musk spoke with Republican presidential candidate Donald Trump on X. While Trump praised Musk and Tesla’s products, he reiterated his opposition to zero-emission vehicles, pledging to reverse pro-EV mandates if elected.
Despite the recent uptick, Tesla's stock remains down approximately 16% year to date. Elevated interest rates have dampened consumer demand for big-ticket purchases — a challenge Musk himself has acknowledged. However, with inflation easing and unemployment high, the odds are increasing that the Federal Reserve might cut rates in September. As Tesla navigates these dynamics and crosses a crucial technical threshold, the question arises if now is the time to buy Tesla shares or if profits should be booked. Let's delve deeper.
EV Market Losing Spark, TSLA Bearing the Brunt
The EV market is facing headwinds as consumer demand wanes due to concerns over charging infrastructure, high ownership costs and range anxiety. Tesla is feeling the impact, with its deliveries declining despite substantial incentives. In the first quarter of 2024, Tesla’s deliveries dropped 8.5% year over year — the first such decline since 2020 — followed by a 5% contraction in the second quarter. The company has already warned that its vehicle volume growth for 2024 will be lower than in 2023, citing efforts to launch its next-generation vehicle at Gigafactory Texas, macroeconomic uncertainties and slowing EV demand.
Tesla's automotive gross margins are under pressure due to high production costs and aggressive price cuts. Automotive gross margins (excluding regulatory credits) dropped to a five-year low of 14.6% in the last reported quarter. We expect margins to remain under pressure amid high costs of goods sold and frequent price cuts by Tesla.
With competition from established automakers like General Motors and Ford, as well as newer entrants like Rivian (RIVN - Free Report) and Lucid, intensifying, Tesla’s U.S. market share has slipped to 50% from 63% in 2022. The company’s dominance is likely to wane, thanks to stiff competition. There are also concerns with respect to the China market, which is full of home-grown players like BYD Co Ltd (BYDDY - Free Report) , NIO Inc. (NIO - Free Report) , XPeng and Li, among others.
Tesla is also losing its EV quality advantage over legacy automakers, as revealed by J.D. Power's 2024 U.S. Initial Quality Study. The study shows that Tesla's BEVs now have the same number of issues as those from traditional carmakers, with 266 problems per 100 vehicles.
Buying TSLA Now is a Bet on AI & Robotaxis
Musk is urging investors to view Tesla primarily through the lens of AI and robotics rather than solely as an automotive company. Quoting him, “The way to think of Tesla is almost entirely in terms of solving autonomy and being able to turn on that autonomy for a gigantic fleet. We really should be thought of as an AI-robotics company. If you value Tesla as just an auto company, it’s just the wrong framework. If somebody doesn’t believe that Tesla will solve autonomy, I think they should not be an investor in the company.”
Introduction of Tesla’s humanoid robot project (Optimus), Full Self-Driving (FSD) Beta software (V12.5) rollout and plans to showcase its robotaxi or Cybercab in October signify promising advancements for the company. TSLA expects to have robotaxis next year. It also intends to produce several thousand of its new Optimus robots for internal use in 2025. The expected rollout of Tesla-supervised FSD technology in China and Europe by the end of the year will boost the company’s prospects.
Tesla is set to unveil its Robotaxi on Oct 10 but showcasing a product and launching it are two very different things. And not to forget, Tesla has a history of missed timelines. For instance, Cybertruck was unveiled in 2019 and was expected to be rolled out by 2021 but the company began its first deliveries only in November 2023.
Having said that, investors and analysts are confident about Musk’s big bets on AI and autonomy. Renowned American investor Cathie Wood has long been bullish on Tesla’s robotaxi and autonomous goals.
Is Tesla’s Premium Valuation Justified?
Tesla undoubtedly commands a high valuation, reflecting its innovative edge and strong growth potential compared to traditional automakers. However, we believe its valuation remains somewhat too stretched, given the current challenges.
TSLA shares currently trade at 6.17X forward sales, way higher than the industry.
Image Source: Zacks Investment Research
The company’s ability to deliver on its promises, particularly regarding a lower-priced EV model and advancements in self-driving technology, is crucial. Success in these areas could mark a new wave of growth for Tesla, but failure could lead to significant difficulties for this EV pioneer. At this moment, its current valuation seems unwarranted. TSLA has a Value Score of F.
Don’t Rush to Buy TSLA Now
Tesla has been a trailblazer in the EV market but its ambitions now span energy, robotics and AI. While the prospect of self-driving cars and humanoid robots is thrilling, the timeline for these innovations to yield substantial profits remains uncertain. With growing competition in the EV sector, Musk's emphasis on autonomous driving and AI could be transformative. However, investing in Tesla based solely on its bold promises might be premature at this stage.
The Zacks Consensus indicates a 26.6% year-over-year decline in Tesla's 2024 EPS, and there have been downward revisions in earnings estimates.
Image Source: Zacks Investment Research
Current shareholders might want to hold onto their shares, hoping for the successful execution of Tesla's new self-driving and AI plans. Potential investors should consider waiting for more clarity and a better entry point before investing.
Image: Bigstock
Tesla (TSLA) Stock Tops 200-Day SMA: Should You Buy Now?
Electric vehicle (EV) giant Tesla (TSLA - Free Report) has reached a key support level from a technical perspective. Yesterday, the stock crossed its 200-day simple moving average (SMA), indicating a potential long-term bullish trend. The stock popped up 5.24% yesterday to close the session at $207.83.
TSLA Overtakes the 200-Day Moving Average
The recent price action follows a high-profile interview where Tesla CEO Elon Musk spoke with Republican presidential candidate Donald Trump on X. While Trump praised Musk and Tesla’s products, he reiterated his opposition to zero-emission vehicles, pledging to reverse pro-EV mandates if elected.
Despite the recent uptick, Tesla's stock remains down approximately 16% year to date. Elevated interest rates have dampened consumer demand for big-ticket purchases — a challenge Musk himself has acknowledged. However, with inflation easing and unemployment high, the odds are increasing that the Federal Reserve might cut rates in September. As Tesla navigates these dynamics and crosses a crucial technical threshold, the question arises if now is the time to buy Tesla shares or if profits should be booked. Let's delve deeper.
EV Market Losing Spark, TSLA Bearing the Brunt
The EV market is facing headwinds as consumer demand wanes due to concerns over charging infrastructure, high ownership costs and range anxiety. Tesla is feeling the impact, with its deliveries declining despite substantial incentives. In the first quarter of 2024, Tesla’s deliveries dropped 8.5% year over year — the first such decline since 2020 — followed by a 5% contraction in the second quarter. The company has already warned that its vehicle volume growth for 2024 will be lower than in 2023, citing efforts to launch its next-generation vehicle at Gigafactory Texas, macroeconomic uncertainties and slowing EV demand.
Tesla's automotive gross margins are under pressure due to high production costs and aggressive price cuts. Automotive gross margins (excluding regulatory credits) dropped to a five-year low of 14.6% in the last reported quarter. We expect margins to remain under pressure amid high costs of goods sold and frequent price cuts by Tesla.
With competition from established automakers like General Motors and Ford, as well as newer entrants like Rivian (RIVN - Free Report) and Lucid, intensifying, Tesla’s U.S. market share has slipped to 50% from 63% in 2022. The company’s dominance is likely to wane, thanks to stiff competition. There are also concerns with respect to the China market, which is full of home-grown players like BYD Co Ltd (BYDDY - Free Report) , NIO Inc. (NIO - Free Report) , XPeng and Li, among others.
Tesla is also losing its EV quality advantage over legacy automakers, as revealed by J.D. Power's 2024 U.S. Initial Quality Study. The study shows that Tesla's BEVs now have the same number of issues as those from traditional carmakers, with 266 problems per 100 vehicles.
Buying TSLA Now is a Bet on AI & Robotaxis
Musk is urging investors to view Tesla primarily through the lens of AI and robotics rather than solely as an automotive company. Quoting him, “The way to think of Tesla is almost entirely in terms of solving autonomy and being able to turn on that autonomy for a gigantic fleet. We really should be thought of as an AI-robotics company. If you value Tesla as just an auto company, it’s just the wrong framework. If somebody doesn’t believe that Tesla will solve autonomy, I think they should not be an investor in the company.”
Introduction of Tesla’s humanoid robot project (Optimus), Full Self-Driving (FSD) Beta software (V12.5) rollout and plans to showcase its robotaxi or Cybercab in October signify promising advancements for the company. TSLA expects to have robotaxis next year. It also intends to produce several thousand of its new Optimus robots for internal use in 2025. The expected rollout of Tesla-supervised FSD technology in China and Europe by the end of the year will boost the company’s prospects.
Tesla is set to unveil its Robotaxi on Oct 10 but showcasing a product and launching it are two very different things. And not to forget, Tesla has a history of missed timelines. For instance, Cybertruck was unveiled in 2019 and was expected to be rolled out by 2021 but the company began its first deliveries only in November 2023.
Having said that, investors and analysts are confident about Musk’s big bets on AI and autonomy. Renowned American investor Cathie Wood has long been bullish on Tesla’s robotaxi and autonomous goals.
Is Tesla’s Premium Valuation Justified?
Tesla undoubtedly commands a high valuation, reflecting its innovative edge and strong growth potential compared to traditional automakers. However, we believe its valuation remains somewhat too stretched, given the current challenges.
TSLA shares currently trade at 6.17X forward sales, way higher than the industry.
Image Source: Zacks Investment Research
The company’s ability to deliver on its promises, particularly regarding a lower-priced EV model and advancements in self-driving technology, is crucial. Success in these areas could mark a new wave of growth for Tesla, but failure could lead to significant difficulties for this EV pioneer. At this moment, its current valuation seems unwarranted. TSLA has a Value Score of F.
Don’t Rush to Buy TSLA Now
Tesla has been a trailblazer in the EV market but its ambitions now span energy, robotics and AI. While the prospect of self-driving cars and humanoid robots is thrilling, the timeline for these innovations to yield substantial profits remains uncertain. With growing competition in the EV sector, Musk's emphasis on autonomous driving and AI could be transformative. However, investing in Tesla based solely on its bold promises might be premature at this stage.
The Zacks Consensus indicates a 26.6% year-over-year decline in Tesla's 2024 EPS, and there have been downward revisions in earnings estimates.
Image Source: Zacks Investment Research
Current shareholders might want to hold onto their shares, hoping for the successful execution of Tesla's new self-driving and AI plans. Potential investors should consider waiting for more clarity and a better entry point before investing.
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.