Tesla (TSLA) Stock Snaps Six-Day Losing Streak, but Here’s the Real Reason You Should Be Bearish

Tesla Motors

Shares of Tesla Inc. (TSLA) rallied on Thursday and were on track to snap a brutal six-day losing streak, as investors snatched up the struggling automaker at 52-week lows. The rally came after CEO Elon Musk told employees that the company was on pace to exceed record deliveries this quarter. But beneath the surface, investors know Tesla faces an uphill battle retaining market share amid escalating competition.

TSLA Stock Rallies

Tesla’s stock price made a new 52-week low on Thursday, falling by as much as 3.4% during a volatile New York session. It has since rebounded more than 2% to trade in the mid-$196 region.

Tesla Stock
Shares of Tesla Inc. (TSLA) see intraday volatility on Thursday. | Source: Yahoo Finance.

The rally may have been stoked by Elon Musk, who told employees that the automaker was poised to set a new record high for deliveries.

Analysts are overwhelmingly bearish on TSLA stock. Citigroup recently predicted a 40% chance that the company’s share price falls to $36. Morgan Stanley says the worst-case scenario for TSLA is an eventual fall to $10 a share.

But not everyone is convinced Tesla has such a grim future ahead of it. According to Blue Line Futures President Bill Baruch, Tesla’s stock price will offer value once it reaches a certain point.

In an interview with CNBC on Wednesday, Baruch said investors should look to snatch up TSLA when it falls to around $180. That’s the point at which the relative strength index (RSI), a closely-watched momentum indicator, gets really low. This implies a deep discount as TSLA would be oversold.

“Let it get down to $180. At that point, I think you can either buy some calls with maybe 30 or 60 days of time, or just the underlying stock, and look for a value buy and a short-term trading opportunity,” he said.

Tesla’s stock went against the grain of a wider market meltdown on Thursday that was stoked by U.S.-China trade tensions. The Dow Jones Industrial Average opened sharply lower on and would eventually fall more than 400 points.

Scary Chart

Despite Baruch’s optimism, analysts have every reason to be skeptical about Tesla. And the real reasons stem from market dynamics.

As Anton Wahlman of The Street recently noted, Tesla won’t be the gold standard of the electric car market for much longer. As a matter of fact, there are roughly 200 electric cars coming onto the market over the next two-and-a-half years.

Even if electric vehicles are the wave of the future (they likely are, given recent estimates put forward by the International Energy Agency), Tesla is one player among many.

To get a sense of the competition Tesla faces, Wahlman drew our attention to Norway, a country where electric vehicle sales are roughly 50% of the overall auto market. As of May 23, Tesla’s total market share in the Scandinavian country was 20%. And no, the Model 3 isn’t first place – it’s second behind the Volkswagen eGolf.

Tesla Market Share
Tesla automobiles account for roughly 20% of Norway’s electric vehicle sales as of May 23, 2019. This figure tracks the top-26 electric vehicles sold in the country. | Source: Anton Wahlman (May 23, 2019). “Tesla: Growing Competition Dooms It to Being a Small and Unprofitable Player.” The Street.

The electric vehicle market may soon be dominated by traditional automakers that can afford to lose money on their new venture. Tesla doesn’t have that luxury and is in fact hemorrhaging money already. Musk recently called on staff to implement a “hardcore” control of expenses. The company is also looking to raise something like $2.3 billion through a forthcoming bond sale and public offering.

So, if you’re thinking about investing in Tesla’s stock even at depressed levels, do your due diligence and prepare for volatility.

Disclaimer: Author holds no investment position in Tesla Motors. 

Featured image courtesy of Shutterstock. Chart via Yahoo Finance. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi