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Tesla stock tends to rise faster than the Nasdaq when the index is going up, but it falls faster when the benchmark declines.
Philippe Lopez/AFP via Getty Images
Shares of EV leader
Tesla
have taken a beating for the past couple of weeks, for reasons related both to the company and to what is happening in financial markets, but a separate factor was pushing them down on Friday.
Tesla (ticker: TSLA) stock was down 1.1% in early trading Friday at $$ 216.92, while the
S&P 500
and
Nasdaq Composite
were down 0.5% and 0.9%, respectively. A loss at the close would mark the sixth consecutive drop for Tesla stock and the 13th in the past 14 trading sessions.
The market deserves some of the blame. Coming into Friday trading, the Nasdaq was off about 7% for the month, and Tesla stock tends to be more volatile than the index. It rises faster when things are good and falls harder when conditions worsen.
Elon Musk deserves some blame, too. On Tesla’s second-quarter earnings conference call in July, Musk reiterated his stance that growth in sales volume was more important than pricing for Tesla. That stoked fears of more price cuts and profit-margin erosion.
After cutting prices aggressively to start 2023, Tesla reported operating profit margins of just over 10% in the first half of 2023, down from about 17% in the first half of 2022.
“For those who stubbornly cling to the notion that Tesla price cuts are somehow good for Tesla valuation, look at Tesla stock versus peers since Tesla’s July 19 conf call,” wrote
Future Fund Active ETF
(FFND) co-founder, and Tesla shareholder, Gary Black in a Thursday tweet.
Tesla stock has dropped about 25% since then. Other large tech stocks are down roughly 3% on average over the same span.
General Motors
(GM),
Ford Motor
(F), and
Stellantis
(STLA) shares have fallen by an average of about 12%.
Events in China appear to be behind Tesla’s drop. The Chinese real estate company China
Evergrande
filed for bankruptcy protection in the U.S. on Thursday, sending Chinese stock indexes lower. The
Shanghai Composite
dropped 1%, while Hong Kong’s
Hang Seng
fell 2.1%.
The strength of China’s economy matters because China is the world’s largest market for new cars and new EVs. Tesla is the second-largest EV maker in China behind
BYD
(1211. Hong Kong).
If there is good news for investors after the decline, it’s that Tesla stock is nearing some technical support. After breaking $240 a share “the zone between the February and March highs would be the next potential stopping point,” says technical stock market analyst and CappThesis founder Frank Cappelleri. That’s $208 to $218 a share.
Cappelleri isn’t making a fundamental call on Tesla stock. He uses stock charts to get a sense of where things will go over the short and medium terms. Charts can tell investors a lot about where investors have bought and sold shares in the past and when too much good or bad news is reflected in stock prices.
Cappelleri’s support is right where Tesla stock is trading. If he is correct, Tesla stock doesn’t have much further to fall.
Coming into Friday trading, Tesla stock was still up about 78% so far this year.
Write to Al Root at allen.root@dowjones.com
