Don't Buy the Tesla Rally Until Stock Hits This Price
Here is my investment plan as Elon Musk's electric vehicle firm sees huge gains on Monday.
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It's no secret that Tesla TSLA stock has tumbled hard in 2025.
As of Friday's close, TSLA was down 38.4% year to date and down 49.1% from the stock's all-time high on December 18, 2024. A lot of this has to do with the realities of reduced demand for electric vehicles. (Has U.S. demand come close to its saturation point?) A lot of this has come from increased competition both here in the U.S. and abroad.
Additionally, unfortunately, a lot of this has come as a result of the divergence in political views between CEO Elon Musk, who is politically conservative and an ally/advisor to President Trump, and what was probably the vast majority of his car company's clientele. By virtue of the company's "clean energy" image, those customers were likely politically liberal in their leanings.
It has not helped that Musk's political opponents have in many cases turned violent, physically attacking, burning and vandalizing not just Tesla dealerships, but the vehicles themselves when those vehicles have been found unprotected in parking lots around America.
Tesla Competition Abroad
Reports broke on Monday morning that the penetration rate for new electric vehicles in China has reached 48% of the broader market. BYD Company BYDDF is the largest electric vehicle manufacturer in China and the force to be reckoned with in that part of the world. Tesla is the largest foreign seller of electric vehicles in China, which is not really much of a title. General Motors GM has stalled in its efforts to compete in this market, while Volkswagen VLKAF has plans to increase its efforts there.
The real competition is from Chinese car companies themselves. Beyond BYD Company, Tesla must go up against NIO NIO, XPeng XPEV, Li Auto LI and now Xiaomi XIACF. For the fourth quarter, Tesla achieved record deliveries in China and also became the fastest-growing brand in South Korea. Still, maintaining market share and that momentum will be challenging.
Competition for Tesla at Home
CNBC reported on Monday morning that South Korean conglomerate Hyundai will be announcing a $20 billion investment in on-shoring some manufacturing operations to the United States. Hyundai already has two U.S. plants producing electric vehicles and will be developing a steel plant in Louisiana to supply those two plants. The plant in Louisiana will create roughly 1,500 jobs.
Beyond that, the competition has been so fierce that both General Motors and Ford Motor F have had to slow their North American production of electric vehicles due to the inability for domestic demand to sustain itself. Tesla's chief U.S.-based competitor without a legacy auto business is probably Rivian Automotive RIVN. That stock closed at $11.60, down from a high of $179.47 in 2021. Lucid Group, even with huge Saudi investment, closed at $2.42 on Friday, down from a high of $64.86 in 2021. Lucid's founder, Peter Rawlinson, who had been both CEO and CTO at the firm, was forced out of his leadership position this past February.
Tesla Earnings and Fundamentals
For the firm's current, or fiscal first quarter, consensus view is for an adjusted EPS of $0.47 or a GAAP EPS of $0.42 on revenue of $22.98 billion. This would compare to an adjusted earnings print for the year-ago period of $0.45 on $21.3 billion. That would amount to sales growth of 7.65%. Though, by manufacturing vehicles around the globe, Tesla can better avoid the impacts of tariffs better than many other firms in its position.
That said, demand will remain an issue. Thirteen of 13 sell-side analysts that I can find have revised these quarterly estimates lower since the start of the quarter. That said, Tesla is not just a car company. The firm operates an energy storage business as well as a solar panel sales/installation business and its charging station infrastructure business. That last business has also come under physical attack by politically-driven vandals.
Operating and free cash flows have remained strong for the past three quarters. The firm ended the December quarter with a cash stash of $36.563 billion and a total debt load of $13.623 billion. The balance sheet is very, very strong.
My Thoughts on Tesla Stock
Even with the near halving of the firm's market cap, it still trades at something close to 90-times forward earnings and almost nine-times sales. By comparison, Ford Motor trades at 0.2-times sales, GM trades at 0.8-times sales and Rivian trades at 2.4-times sales. The stock remains expensive as it always has been. This never really became an issue until Musk became politically active. Can he revive the business? Maybe.
That said, he has probably lost his core customers if not forever, at least for a long time. The people who do not like his politics do not seem like the kind that can see past that. Still, the balance sheet is solid, and if cash flows can stay decisively positive, Tesla may weather this storm. The stock is up huge on Monday. I would not chase this rally, even if interested in picking up some shares of the stock.
Technically, Tesla has an excellent shot at this point at a serious rally. Readers will see here that the stock found support twice in March close to the 78.6% Fibonacci Retracement level of the entire April 2024 through December 2024 rally. Relative strength has started to improve, while the daily MACD is less dreadful than it was early last week.
Note that the stock has taken its 21-day EMA on Monday morning. That brought on the swing crowd, which exacerbated today's move. The real prize is the 200-day SMA at $284.70. That's the pivot. I would rather try to initiate later this week on a down day or add on momentum above that red line than to chase the stock today and add short of that line. That would feel like a setup for failure to me.
So, for investors, that's the plan. The pivot sets up a potential target of $327. Where would I prefer to initiate? Close to that just-mentioned Fibonacci level. The 200-day line is the next stop on this train, if the train is indeed headed north. Keep in mind that just 2.4% of the float was held short, so if there is a short-squeeze element to this rally, there is a limit to what it can accomplish.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
