Tesla (NASDAQ:TSLA) has been making headlines, thanks to the incredible run its shares recently went on. First bolting higher thanks to record Q3 earnings results released on Oct 20, the turbo-charged TSLA stock rally extended into this month.
Largely, thanks to reports of a major car rental chain being in talks to buy 100,000 Tesla vehicles. The buzz around this deal has kept shares rocketing “to the moon,” as the meme crowd likes to say.
But after soaring 57.4% in a month, shares are pulling back. As of this writing, it’s down by a few percentage points on news of CEO Elon Musk’s likely sale of shares due to a looming tax bill.
Based on how it performed after its last hot run, earlier this year, TSLA stock might be at risk of experiencing an extended slide in price. That’s not to say it’s on the verge of collapse, a risk its most vocal skeptics still believe is on the table. But even if you’re bullish on the electric vehicle (EV) powerhouse, you may want to wait for it to recharge before diving into it.
What Could Cause TSLA Stock to Reverse Course?
With the above-mentioned developments, Tesla may seem invincible right now. But sentiment could shift back to the more on-the-fence position the market has had on TSLA for most of 2021.
First, rising competition from incumbent automakers could dampen some of the enthusiasm surrounding it. The automotive industry is making up for lost time, and positioning themselves to someday offer all EV fleets. This may call into question why TSLA stock sports a market capitalization equal to that of all of the “old school” names from Detroit, Germany and Japan.
Second, the six-figure vehicle order mentioned above from a top car rental chain is far from being a done deal. Musk has disclosed that the two parties have yet to sign an agreement. If this rumored big ticket transaction fails to occur, it may result in an outsized drop in its share price. Perhaps not a dramatic selloff in price. But maybe under $850 per share — what it traded for as recently as Oct. 15. Still, a move back below $1,000 per share could also happen.
However, if Tesla simply levels off from here, and sits tight pending further news, you want to keep something in mind before buying. Even as a lot remains in its corner, it’s questionable whether the above-average performance seen with its shares in 2020 and 2021 will carry on into 2022.
Maintain Moderate Expectations
With TSLA stock, many, including several prominent names on the sell-side, believe there’s more than enough to justify, and possibly grow, its more than $1 trillion market capitalization. This may very well be true.
However, it might be a stretch for it to deliver high double- or triple-digit percentage gains in the coming year. It’ll really need to go above and beyond in terms of its operating performance. And given the aforementioned rising competition, over time, it’s going to get harder for it to sustain the levels of growth it’s seeing today. At least, just from vehicle sales alone.
Yes, progress with its other large-scale plans may be something that gives it a big jolt down the road. For example, its much-touted plans to enter the robotaxi business. I will say though, that Tesla’s hardly alone in wanting to become a big player someday in this space.
Besides making its way into Tesla’s personal electric vehicle bread-and-butter, a major American automaker has backed a robotaxi venture of its own. It could have 1 million of these vehicles on the road by 2030. Meanwhile, Musk has yet to deliver on the robotaxi promises he has made in recent years.
The Verdict on TSLA Stock
As investors have stopped hitting the accelerator on Tesla shares, what comes next is unclear. On one hand, the above-mentioned risks could weigh more heavily on the minds of investors. Plus, Musk’s sale of shares for tax purposes may put some pressure on it as well. This may mean a repeat of the big slide it experienced earlier this year, after its last turbo-charged run-up.
On the other hand, with its recent strong numbers, and the market’s continued enthusiasm for growth stories? It may still be far from topping out.
The key takeaway from the uncertainty now surrounding TSLA stock, and the likely volatility ahead, is that even if it’s bullish, the recent price action may be a sign to wait for a recharge first.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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