Shares of Tesla (NASDAQ: TSLA) have run into some serious resistance even after after avoiding any headline risk over the past several weeks. TSLA stock seems to be stalling out after a red hot rally off the recent lows at $180. Given the ongoing cash burn and deteriorating demand, I look for Tesla stock to put on the brakes and head lower over the coming months.
Goldman Sachs recently slashed their price target by 20%, citing “sustainable demand” as the key factor. In the note from June 20, Goldman dropped the price target on Tesla stock from $200 to just $158, representing a 28% discount to the $221.86 closing price of TSLA. Goldman also brought up the possibility if yet another additional-and further dilutive-capital raise.
According to Tesla analysts, demand forecasts for Tesla will, once again, underperform. While CEO Elon Musk yet again predicts that sales could hit record levels, second-quarter projections point to deliveries of just 88,900 units — well under expectations. At some point investors will likely begin to tire of the continued ability of Tesla to overpromise and under deliver.
The technicals also point to a pullback on the horizon. TSLA stock became overbought on an RSI basis. MACD also reached an extreme while momentum turned lower. The 50 day moving average at $221.86 should provide additional overhead resistance as well.
Unfortunately for Elon Musk’s electric car manufacturer, indicators point to the likelihood that demand will continue to be an issue for Tesla. Market saturation is a huge concern. Within the coming year, other major auto manufacturers are looking to debut their own electric cars. Additionally, some alternatives — like the Chevy Bolt — have already found great success and are crowding out the market’s demand.
Interestingly, the usually-boisterous Elon Musk has been uncharacteristically subdued as of late. And although the relative silence may have bolstered investor confidence, it seems unlikely the change will reflect a softer approach for the Tesla CEO. Instead, it appears as if Musk’s focus has shifted away from Tesla, largely because he has his hands full with his other business venture, SpaceX.
The SpaceX Distraction
SpaceX is currently in the midst of a high-stakes lawsuit as it looks to capitalize on the ongoing politicization of the Launch Service Agreement (LSA). The LSA is the flagship space program for the Air Force. Musk is certain to be focused with the ongoing litigation to bolster SpaceX. This is especially true given the string of recent failures for the Space X program. Indeed, some have suggested the SpaceX is obstructing national security interests to secure a courtroom victory to win LSA contracts.
With a potential public relations crisis brewing, Musk’s apparent decision to shift his attention to SpaceX makes sense. This is even more likely given that SpaceX was recently valued to be worth more than Tesla. While Tesla investors may appreciate a less controversial CEO at the helm, at the end of the day profits matter. With demand sagging and production woes continuing, it may be time for investors to short TSLA stock on any rally.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com.
