The shares of Tesla, an industry leader in electric vehicles, have encountered numerous obstacles in recent weeks. These challenges can be attributed to both internal factors within the company and external events within the financial markets. However, another significant factor contributed to a decline in Tesla’s stock price on Friday.
As of early trading on Friday, Tesla’s stock (ticker: TSLA) had dropped by 1.1%, reaching $216.92. In comparison, the S&P 500 and Nasdaq Composite experienced declines of 0.5% and 0.9% respectively. This potential loss would mark the sixth consecutive decrease in Tesla’s stock price and the thirteenth drop in the last 14 trading sessions.
The market itself holds some responsibility for this setback. Prior to Friday’s trading, the Nasdaq had seen a decline of approximately 7% for the month. Due to its inherently volatile nature, Tesla’s stock tends to experience more significant fluctuations compared to the index. Consequently, it rises rapidly during prosperous times but declines more drastically during challenging periods.
Elon Musk, the renowned business magnate and Tesla’s CEO, also bears some responsibility for the decline. During Tesla’s second-quarter earnings conference call in July, Musk emphasized the importance of sales volume growth over pricing strategies for the company’s success. This statement raised concerns among investors regarding potential price cuts and subsequent erosion of profit margins.
Following significant price reductions at the beginning of 2023, Tesla reported operating profit margins of just over 10% in the first half of that year, a decline from approximately 17% during the same period in 2022.
In a tweet on Thursday, Gary Black, co-founder of Future Fund Active ETF (FFND) and a Tesla shareholder, addressed those who perceive Tesla’s price cuts as beneficial to its valuation. He compared Tesla’s stock performance against that of its competitors since the company’s July 19 conference call, highlighting the impact of Tesla’s strategy on its valuation.
While Tesla faces challenges, its ability to overcome these obstacles and adapt to changing circumstances will ultimately determine its success in the ever-evolving market.
Tesla Stock Declines Amidst Chinese Market Turmoil
Tesla stock has experienced a significant drop of approximately 25% in recent times, while other prominent tech stocks have seen an average decline of about 3% during the same period. General Motors (GM), Ford Motor (F), and Stellantis (STLA) have also encountered a decrease in their shares, averaging around 12%.
The cause behind Tesla’s decline seems to be associated with events unfolding in China. China Evergrande, a major Chinese real estate company, recently filed for bankruptcy protection in the U.S., leading to a decline in Chinese stock indexes. The Shanghai Composite dropped by 1%, and Hong Kong’s Hang Seng plummeted by 2.1%.
China’s economic strength holds significant importance as it represents the largest market for new cars and electric vehicles (EVs) globally. Currently, Tesla holds the position of being the second-largest EV manufacturer in China, only trailing behind BYD (1211. Hong Kong).
Despite the decline, there is a glimmer of hope for investors. Tesla stock is approaching a critical level of technical support. According to Frank Cappelleri, a technical stock market analyst and the founder of CappThesis, the next potential stopping point for Tesla stock would be the zone between the February and March highs, following the break of $240 per share. This translates to a range of $208 to $218 per share.
Cappelleri’s analysis does not reflect a fundamental assessment of Tesla stock but rather utilizes stock charts to predict short and medium-term trends. Through charts, investors can gauge past buying and selling patterns and ascertain whether any positive or negative news have excessively impacted stock prices.
Interestingly, Cappelleri’s support aligns precisely with Tesla stock’s current trading range. If his analysis proves accurate, it suggests that Tesla stock may not have much farther to decline.
Despite the recent downturn, Tesla stock remains up by an impressive 78% in the year thus far.