(Bloomberg) — As a rout in Tesla’s stock goes from bad to worse, some investors are bracing for more downside ahead.
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Shares of the Elon Musk-led electric-vehicle company are down about 40% from their late 2024 high, a reversal that accelerated in recent days after data showed Tesla’s European car sales nearly halved in January. This week’s roughly 17% decline in the share price suggests the slowdown in Tesla’s mainstay auto business is starting to unnerve traders. That’s bad news for a stock whose fortunes have been driven by investor enthusiasm as much as fundamentals.
“The real difficulty with any stock that is as richly valued as Tesla is to be able to call a floor,” said Steve Sosnick, chief strategist at Interactive Brokers. “Since Tesla has defied conventional valuations for so long, a bottom is more about investor sentiment than the normal metrics that value investors might use.”
Tesla’s troubles have piled up fast this year. The stock soared after the US presidential election on bets that Musk would benefit from his close association with President Donald Trump. But investor confidence ebbed in January, when the company reported weak fourth-quarter delivery numbers and its sales showed the first annual drop in over a decade. An earnings report later showed lower-than-expected quarterly profit, just as the company dialed back its sales outlook for 2025.
Tesla’s market value fell below $1 trillion for the first time since November this week, putting it below Berkshire Hathaway Inc. and Broadcom Inc. in the ranking of the most valuable US companies. Its shares are one negative close away from tying the longest losing streak in their history.
Catalysts Lacking
For now, few catalysts for a rally are apparent. Analysts do not expect a meaningful update on the company’s plan for a fully self-driving vehicle any time soon. A competitor, China’s BYD Co., earlier this month said it planned to enable advanced driver-assistance features in almost all future models at no additional cost. Musk’s preoccupation with politics has also worried investors who would like to see him spend more time running the EV maker.
The stock’s high valuation is another reason for caution. Tesla shares trade at 92 times forward earnings, compared to 21 times for the S&P 500 and an average of 28 times for Tesla’s mega-cap peers. Its recent decline has come amid a slide in the broader market that has pulled the S&P 500 down some 5% from a record high hit this month.
Any one of those factors may be why some investors are preparing for further turbulence, rather than buying the dip. One measure of options positioning, implied skew on one-month options, flipped bearish last week for the first time since November, a sign that traders are looking for protection against future declines. Options traders are paying the biggest premium to protect against a decline in Tesla shares since a selloff rocked markets in August.
Technical strategists, who study charts to predict where a stock might be headed, are no less wary. One reason is the sheer momentum of the stock’s current unwind, along with its history of intense volatility.
Mark Newton, head of technical strategy at Fundstrat, expects the shares to bounce from the $275 level, which is about 2.5% lower from where the stock closed on Thursday. A break below that number could see the stock test further support at $260, he said – a level it had last seen before the election.
Of course, even the most bearish Tesla investors know that sentiment on the stock could turn on a dime, even if fundamentals are looking dire. The most recent example came during Tesla’s post-election rally, during which the company’s share price nearly doubled in only 29 trading sessions.
Investors hanging on for a turnaround, however, could be in for a rough ride, said David Mazza, chief executive officer of Roundhill Financial.
“We expect Tesla to remain under near-term pressure as investors weigh the benefits of Musk’s ‘First Buddy’ premium with the reality of their EV business struggling in strategically important markets,” he said. “It’s challenging to say what the right path for the stock is considering these dueling narratives.”
–With assistance from David Marino.
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