Tesla Stalls at Potentially Key Level As Competitors Make a Comeback

Tesla Stock May Be Hitting Resistance as Competition Increases

Tesla appears to be hitting resistance at $700 as sentiment pivots to legacy automakers like General Motors and Volkswagen.

This chart highlights a few important patterns on Elon Musk’s electric car maker:

  • A trendline that began in May was broken in February. Rather than bouncing, as it did June and November, TSLA has staggered since.
  • Prices are stalling around $700, which is near a breakout level from the end of 2020. Is this “nice, round number” turning into resistance?
  • The histogram at the bottom displays TSLA’s relative strength versus General Motors (GM) over the trailing 21 days. Notice how it’s lagged since late January, while the Detroit-based company has been hitting new highs.
  • The 21-day exponential moving average (EMA) has crossed below the 50-day simple moving average (SMA). That’s a potential sign of its trend changing.

TSLA down is down 16 percent in the last month. That ranks it among the 10 worst performers in the entire S&P 500 over that period. It’s also a big change from last year, when it led the index.

Tesla (TSLA), daily chart, highlighting select indicators and patterns.

Its weakening momentum matches a broader trend in the stock market of investors rotating to lower-multiple “value” stocks. That’s a huge change from 2020, when low interest rates and weak economic growth drew money to expensive “growth” stocks.

Is Competition a Threat?

Investors may also notice the growing number of electric vehicles coming from other companies. Today, for example, BMW unveiled its BMW i4 electric coupe. Audi has abandoned the development of internal combustion engines. Der Spiegel reported Mini will stop selling gasoline-powered cars by 2030. Hyundai offered free electricity for owners of the Ioniq and Kona models.

Volkswagen, the world’s No. 2 automaker behind Toyota Motor (TM), also held its Power Day event this week. Executives outlined plans for transitioning to electrons with cheaper and simpler power cells.

The Volkswagen event could be especially important for two reasons. First, investors loved it. The German-listed company rallied 13 percent in Frankfurt to its highest level in over a decade. It was similar to GM’s breakout after releasing new vehicles on January 12.

Company1-Month ChangeForward
P/E Ratio
Tesla (TSLA)-16%169x
General Motors (GM)+9%11x
Ford Motor (F)+8%12x
Toyota Motor (TM)-2.510x

Second, board member Thomas Schmall said Volkswagen will use its “economies of scale.” This could be another big threat because the traditional auto industry is vast, with countless dealerships around the world. Companies like GM, F, Volkswagen, BMW and TM have the marketing and distribution to reach more customers than TSLA. The legacy companies also trade at much lower price/earnings and price/sales ratios. (See table.)

Another point is the first isn’t always best in the auto space. After all, Henry Ford ruled the industry about a century ago. But then his firm lost its edge to General Motors because Alfred Sloan did a better job at marketing. Innovative vehicles aren’t the only ingredient to success.

In conclusion, TSLA had first-mover advantage in the electric-car space. But its price action has weakened. Meanwhile, other companies are gaining momentum and starting to present competitive threats.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.