I want to buy Elon Musk a beer and let him vent. For that matter, I’ll buy him a bottle of Willet XCF just to hear what’s going through his mind.
In case you don’t know, that’s a $1,200 bottle of bourbon, but I think it would be well worth it to hear his thoughts.
At the top of the list must be the move that the Biden Administration made this week. Here’s the headline…
Tesla (TSLA) shares have already been lagging the market as they trade 20% year to date. The stock joins Apple (AAPL) in the “Magnificent Seven Cellar.”
Softening demand for EVs and a poor earnings report have been the stock’s ballast, but things got worse this week when the Biden Administration started making the shift that Ford (F) and GM (GM) have been seeing coming.
The political shift… a potential reduction in the tough tailpipe emissions standard goals that have been a catalyst for EV manufacturing and sales.
The reason? A quid-pro-quo. (Sidenote, I love using that phrase.)
At its simplest form, the Biden Administration supported the automobile union workers during the strike last year, and now they need the union’s support in the election. It’s the oldest game around.
Add to that the fact that EVs take less time – and thus less union hours – to produce, and you’ve got the makings of an EV hell moving forward.
GM and Ford read the tea leaves and announced that their companies are shifting focus to the hybrid market. The auto manufacturers will ramp-up production of hybrid vehicles over the next few years with the goal of hitting the lowered emission standards.
Let’s add this up for a second…
- Lower emission standards means less pressure for folks to by EVs.
- Let’s face it, Teslas are mainly eye candy with their high price tags, that market is filled and Tesla will now battle with lower priced hybrids? Not good.
- As if it weren’t bad enough, the recent changes to the tax credits for EVs excludes the Model 3 as of December 31, 2023 - something Tesla has acknowledged. The Model 3 sold more than 500,000 units last year, third to the BYD Song and Tesla Model Y. The BYD Song costs under $30k, while the Model Y starts around $43k.
Here’s the Kicker
Tesla’s stock price and trend is showing the wear of what I’ve laid out.
The stock just completed what technical analysts like me call a “Death Cross.” It sounds ominous for a reason.
A death cross happens when a stock’s 50-day moving average crosses below its 200-day moving average. The chart below displays this phenomenon.
In a nutshell, this “signal” indicates that a stock’s long-term momentum is picking-up bearish steam. Historically, a Death Cross signals lower prices over the next six months for the stock or index on which it occurs.
We last saw a Death Cross on Tesla stock in September 2022. The results: A 62% decline in share value over the following 69 trading days.
Please keep in mind that the trends can shift in a matter of weeks to reverse this momentum. Also be aware that this is one of the reasons that we have seen analysts lowering price targets and their recommendations on Tesla.
Bottom Line
Tesla and Apple are the two “Mag Seven Stocks” that have lost their mojo. Given the fact that these names are crowded trades, we can expect longer-term selling as investors shift money from these flailing names to new discovery stocks like Super Micro Computer (SMCI).
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.