Throughout the time that I’ve been covering Tesla Inc. (NASDAQ:TSLA), the calls seem to be straightforward.
Not only has the TSLA stock price soared in recent years, the bullishness is justified. CEO Elon Musk is a genius, constantly pushing boundaries and paving the way for the technology of tomorrow. That he’s so young implies that we’re going to see plenty of Tesla-generated news.
Yet despite TSLA stock gaining slightly over 50% this year, investors are right to be worried. Between August through the middle of October, shares did virtually nothing.
Over the past few days, TSLA shed nearly 11% of value in the markets. Halloween came early for Tesla, with the share price barely straddling its 200-day moving average.
While I still believe that Tesla is one of the companies of the future, you must always respect the markets. Here, the signals for the TSLA stock price are pretty obvious.
As previously mentioned, shares were moving sideways for a few months, making it extremely difficult for analysts to call. But with TSLA moving so firmly downward, the next few sessions will be critical.
Although the company has come back from sharp corrections before (see the first quarter of 2016), I’d wait out this present bearish trend. Investors are reacting poorly to the TSLA stock price failing to breach the $390 level twice this year; once in late June and the other in mid-September. Under such circumstances, it’s probably better to wait before buying back in.
Model 3 Problems a Headwind for TSLA stock
But when will that buyback period occur? I have to caution readers that bullish investors may need to be more patient than they anticipate. As our own Will Ashworth stated earlier this year, a $1,000 TSLA stock price is within the realm of possibility.
Its market capitalization already exceeds Ford Motor Company (NYSE:F) and is steadily approaching General Motors Company (NYSE:GM). Better yet, Tesla has the kind of social cache that Ford and GM lack.
However, in order for TSLA stock to hit this lofty target, Tesla has to move its production line. That’s been a big question considering the ambiguity surrounding the upcoming Model 3, an event that inspired famed fund manager David Einhorn’s short position. Ashworth writes:
“In August I acknowledged Einhorn’s short, concluding my article by suggesting that Tesla’s stock would be overvalued if it doesn’t hit monthly production of 20,000 Model 3s by the end of the year.”
“The Wall Street Journal reported that the much-hyped Model 3 was indeed in production — by hand,” wrote InvestorPlace’s Lawrence Meyers discussing Tesla’s instance valuation recently. “Another source even says that the Model 3 is still being developed. Wasn’t this the car Musk said would be delivered in 2016? That doesn’t sound like a company ready to produce 20,000 vehicles per anytime soon, does it? Einhorn certainly doesn’t think so.”
Since the second quarter of 2015, Tesla auto deliveries and its share price have somewhat of a direct relationship: as deliveries rise, so too does TSLA.
But as deliveries appeared to plateau since the third quarter of 2016, the TSLA stock price softened. Investors need more than just promises of a brighter future.
TSLA Will Eventually Pick Itself up
With all that being said, I have high hopes for Tesla once they figure out their Model 3 issues. Any rising star will eventually have hiccups. How the company responds to this latest challenge will say a lot about their corporate character.
In the meantime, as I said earlier, we have to respect the markets. The bulls know they can trust Elon Musk. Furthermore, they understand that TSLA is way ahead of the curve in terms of electric vehicles and driverless technologies.
But the general public tends to overreact to news and especially so for bad news. We may see some scary downside swings in the TSLA stock price. All I can say is ride it out and be prepared for a discounted opportunity somewhere down the line.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
