Electric vehicle leader Tesla’s shares have taken a hit over the past few weeks for reasons both related to the company and events in the financial markets. But another factor pushed them lower on Friday.
Tesla (ticker: TSLA) shares fell 1.7% to $215.49 during the
S&P 500
was flat and the
Nasdaq Composite
down 0.2%. The loss marked Tesla stock’s sixth straight decline and 13th in the past 14 trading sessions.
The market deserves some of the blame. At the start of Friday trading, the Nasdaq is down about 7% this month, and Tesla stock tends to be more volatile than the index. It rises faster when conditions are good and falls more when conditions worsen.
Elon Musk also deserves some blame. On Tesla’s second-quarter earnings call in July, Musk reiterated his stance that sales volume growth is more important than pricing for Tesla. That fueled fears of further price cuts and a decline in profit margins.
After aggressive price cuts early in 2023, Tesla reported an operating profit margin of just over 10% in the first half of 2023, compared to about 17% in the first half of 2022.
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“For those doggedly clinging to the notion that Tesla price cuts are somehow good for Tesla’s valuation, look at Tesla stock versus peers since Tesla’s July 19 conference call,” the co-founder and Tesla wrote -Shareholder of Future Fund Active ETF (FFND). Gary Black in a Thursday tweet.
Since then, Tesla stock has fallen about 25%. Other big tech stocks have fallen an average of about 3% over the same period. Shares in General Motors (GM), Ford Motor (F) and Stellantis (STLA) are down around 12% on average.
Events in China appear to be the reason behind the Tesla crash. Chinese real estate company China Evergrande filed for bankruptcy protection in the US on Thursday, pushing Chinese stock indices lower. The
Shanghai Composite
fell 1% during Hong Kong’s
hang seng
fell by 2.1%.
The strength of China’s economy is important as China is the world’s largest market for new cars and new electric vehicles. Tesla is the second largest electric vehicle manufacturer in China after BYD
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(1211. Hong Kong). BYD shares fell 3.8% in overseas trading on Friday.
If there’s good news for investors following the drop, it’s that Tesla stock is nearing some level of technical support. After breaking $240, “the zone between the February and March highs would be the next potential stopping point,” says stock market technical analyst and CappThesis founder Frank Cappelleri. That’s $208 to $218 per share.
“Nearest support…is around $200 based on a 50% retracement of the year-to-date uptrend,” said Katie Stockton, founder and market technician at Fairlead Strategies. Support “is supported by the 200-day moving average, which sits at $197 and is gradually rising.”
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Cappelleri and Stockton make no fundamental assessments of Tesla stock. They use stock charts to get a sense of how things will go in the short and medium term. Charts can tell investors a lot about where investors have bought and sold stocks in the past, and when too much good or bad news is reflected in stock prices.
Cappelleri support is where Tesla stock trades. If he’s right, Tesla stock can’t fall much further.
As of Friday trading, Tesla stock was still up about 75% so far this year.
Write to Al Root at [email protected]
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