Top 4 Reasons Why Tesla Stock Price May Crash Further Soon

Key Insights

• Tesla stock price may drop further in the coming weeks.
• It has formed a double-top pattern on the three-day chart.
• There are lingering concerns about its high valuation.

Tesla stock price has dropped sharply from its highest point this year. The company has continued facing some major headwinds. It was trading at $375 on Monday, much lower than the December high of $503. This retreat may continue as the company faces major headwinds this year.

Tesla Stock May Continue Amid Profitability Concerns

The most recent results showed that the company’s profitability did well in the fourth quarter of last year. Its net profit rose by 56% to $1.45 billion, while the free cash flow jumped by 117% to $1.4 billion.

Tesla warned that it will not achieve a positive free cash flow this year. This shortfall stems from the company’s decision to boost its investments in the artificial intelligence industry.

Its biggest spending will be on the Terafab project in Texas. This project will see Tesla and SpaceX start to manufacture their chips. It’s a move meant to ensure continuity in case of major supply chain disruption.

The challenge, however, is that this project will be expensive, with the initial target being between $20 and $25 billion. It’s a figure that will continue rising because of inflation.

On the positive side, Tesla has one of the best balance sheets in the industry with over $44 billion in cash and equivalents. It is also a partnership with SpaceX, which will contribute to the funding.

Soaring Competition in Key Markets

Tesla stock price may crash because of the rising competition in its key markets. Its US market is expected to face more competition from companies like Rivian and Lucid. These firms are planning to launch new, cheaper models.

The Chinese market is also becoming highly competitive, with the top competitors coming from companies like Nio, BYD, Xiaomi, and XPeng.

Tesla’s recent delivery data significantly underperformed expectations. The gap between manufactured and delivered vehicles widened to over 50,000 units during this period.

In contrast, a company like Nio announced that its deliveries surged by over 70% in the fourth quarter. Other Chinese companies are boosting their deliveries.

At the same time, European brands like Renault and Volkswagen are seeing more electric vehicle (EV) sales. Therefore, this soaring competition means that the company’s growth may slow in the near term.

Tesla is Highly Overvalued

Ideally, Tesla should have a higher valuation than other companies because of the Elon Musk premium.

However, the reality is that its valuation has become out of touch with reality. Data compiled by SeekingAlpha shows that the company has a forward price-to-earnings (PE) ratio of 180. That’s much higher than the sector median of 15.

In contrast, NVIDIA, a company whose growth and market share are growing, has a forward multiple of 23. Its forward PEG ratio of 5.1 is also much higher than other companies.

In the past, it was possible to justify Tesla’s valuation as the company had a big market share and its business was growing. Today, it is hard to justify the valuation as its growth has slumped.

Tesla Stock Price Technical Analysis

The TSLA stock price crashed from a record high of $500 last December to $375 today. The three-day chart reveals a giant double-top pattern forming at the $488 level.

That technical setup identifies the neckline at $215. This specific price point represents the stock’s lowest level recorded in April of last year.

Tesla has moved below the 50-day EMA and the Major S/R pivot point of the Murrey Math Lines tool. It has also plunged below the Supertrend indicator for the first time since January last year.

These technical indicators suggest the stock will continue its downward trend in the near term. The price could potentially drop to the $312 level. This marks the Strong, Pivot, and Reverse point on the Murrey Math Lines tool.

The bullish outlook will become invalid if the price rises above the key resistance level at $437. It’s the Strong Pivot Reverse.

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