Tesla’s Stock Set for a ‘Death Cross’: 3 Reasons Why It’s a Risky Buy

Hold onto your hats, traders! Tesla’s stock (TSLA) is on the brink of a ‘death cross,’ an ominous technical indicator suggesting that the 50-day moving average is about to fall below the 200-day moving average. This pattern is typically seen as a bearish signal and can trigger a cautious stance among institutional investors. Let’s break down three compelling reasons why picking up shares of Tesla now could be more perilous than lucrative.

Sales Slump is Real

First off, we need to address the elephant in the room: Tesla’s vehicle sales are declining. The company has reported a 8% decrease in revenue from auto sales in the latest quarter when compared to the same time last year. After holding an impressive 80% share of the U.S. EV market just a few short years ago, Tesla’s grip has dwindled to about 49% in 2024.

This downward trend can be attributed to the robust competition in the EV landscape from traditional automakers rolling out their own electric models. High-profile brands loaded with legacy credibility are tapping into Tesla’s customer base, and the narrative is becoming clearer: it’s not just about tech; it’s about consumer choice. And let’s not forget how consumer sentiment can play a crucial role in these dynamics.

Failed Valuations and Soaring Multiples

Next up is the glaring valuation issue. Tesla is currently trading at a forward P/E ratio of 85.1, while competitors like Ford are comfortably sitting at a mere 7. The lofty valuation may have been justified during rapid growth periods, but with revenue growth losing traction, charging such a hefty premium is becoming increasingly questionable.

Investors may argue that Tesla’s innovative nature warrants a higher multiple, but the reality on the ground shows stagnation in automotive sales. Industry experts contended that it’s rather risky to hold on to Tesla right now, given its steep decline of nearly 40% over the last several months. In terms of technical metrics, we can’t ignore how the upcoming death cross could drive institutional money to hit the pause button.

Sentiment Wreaking Havoc

Alongside the bleak sales figures and sky-high valuations, there’s the troubling public sentiment surrounding Tesla. After a rocky period involving CEO Elon Musk’s ties to Washington, the backlash has been palpable, leading to protests and vandalism aimed at Tesla-owned dealerships and charging stations. A YouGov survey revealed that a staggering 37% of participants cited Musk as a main reason for rejecting the idea of owning or leasing a Tesla.

To put this into context, let’s look at how political boycotts have previously impacted brands. Take Bud Light, for instance: after facing a backlash, its stock erased about 16% of its value in just a month, with sales still struggling to rebound. The challenges Tesla faces today echo that scenario but on a much larger scale.

The Flicker of Positives

Now that we’ve dissected the risks, let’s flip the coin and discuss some potential upside arguments. Firstly, the stock has been beaten down significantly, which may provide a margin of safety for investors keen on entering at lower levels. Analysts remain bullish, with a mean price target of $342, whereas Tesla was trading around $252 as of the last close.

Secondly, it’s crucial to remember that sentiment can shift faster than a Tesla on Ludicrous Mode. Last month, a report suggesting Musk’s exit from DOGE gave the stock a mini-rally, hinting that positive news cycles can quickly energize the price.

Lastly, let’s not overlook Tesla’s foray into other promising sectors like autonomous vehicles and renewable energy. While the automotive side faces headwinds, their energy segment has experienced a surge, growing 67% even as auto revenue slightly dipped. There’s a glimmer of hope here that investors should monitor closely.

Conclusion

Traders, with Tesla’s stock teetering on the edge of technical bearishness and facing considerable fundamental challenges, caution is advisable. The ‘death cross’ signals a potential shift in the horizon, and with sales declines, troubling valuations, and changing sentiments, this is a dicey moment for potential buyers. As always, stay alert, remain analytical, and be ready for the next trend shift.