Has Tesla Bottomed Out?
Tesla Inc. (TSLA) is trading lower in Monday’s pre-market, resuming a decline that has dropped the EV manufacturer into the red for 2021. The stock is now down more than 8% since the last trading day of 2020, underpinned by two major headwinds. First, sentiment for last year’s leadership has grown bearish in reaction to historic share gains and soaring bond yields. Second, a worldwide chip shortage has forced automakers to scale back production, impacting first quarter revenue.
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The Future Still Looks Bright
Even so, the future looks bright for Musk and Co. because Tesla’s software innovation could prove more lucrative than EV sales in coming years, due to its growing leadership in scalable platforms. That market alone may be worth over $200 billion per year by 2030 for the manufacturer, more than the value of hardware sales. Autonomous driving should generate the biggest share of this venue, keeping profits flowing for decades to come.
Not everyone is discouraged by Tesla’s 2021 fall from grace. UBS analyst Patrick Hummel raised his target to $730 from $325 last week despite the selloff, noting, “The VW ID.3 teardown has underpinned that “all-in” legacy OEMs can challenge Tesla’s EV volume leadership with cost-efficient scalable platforms but Tesla remains the undisputed tech leader, most notably in software. This is the next battleground and main driver of valuation from here, in our view”.
Wall Street and Technical Outlook
Wall Street consensus has deteriorated in the last quarter, with a ‘Hold’ rating based upon 8 ‘Buy’, 1 ‘Overweight’, 15 ‘Hold’, and 3 ‘Underweight’ recommendations. More importantly, seven analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $67 to an astronomical Street-high of $1,200 while the stock is set to open Monday’s session more than $40 below the median $621 target.
Tesla topped out near 900 in January and broke support between 750 and 770 in February. The decline picked up steam last week, reversing within 20 points of the 200-day moving average at 520. The combination of .618 Fibonacci rally retracement, moving average, and psychological support at 500 should attract buying interest in coming sessions, raising odds for a strong bounce lasting weeks to months.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.