Tesla
stock has had a pretty lousy start to 2024. It isn’t unprecedented, but it’s bad enough that investors should ask themselves what’s going on.
Tesla
shares have fallen 12% to start the year. The
S&P 500
and
Nasdaq Composite
both have been flat.
There are a few non-Tesla reasons investors might be selling. The U.S. 10-year Treasury bond yield has ticked up ever so slightly to just over 3.94% from just below that. It’s a tiny change but reflects a hotter-than-expected consumer inflation reading that has shaken some investor confidence that the Federal Reserve will be cutting interest rates.
Lower interest rates can help stock valuations. They can also make cars cheaper to finance, helping Tesla and others sell more cars.
Then there are taxes. Tesla stock doubled in 2023. Sometimes investors avoid selling until a new year to put off paying taxes until their next year’s tax filing. It’s the opposite effect of tax-loss selling in December.
That, like the change in the 10-year yield, also likely is just a minor factor. Tesla stock has risen 11 of the 13 full years that it has traded as a public company. The stock has dropped to start the next year in six of the 11 times. That is more than 50%, but not much of a trend.
This year isn’t the worst start to a year, however. It’s only the fourth-worst start. Tesla stock dropped more than 20% in the first nine trading days of 2012 after rising 7% in 2011.
More significant than trading patterns and rates are Tesla’s Chinese price cuts, implemented late this week. Lower prices for cars mean lower profit margins and lower earnings estimates from analysts. What’s more, lower prices in China will stoke speculation that prices for new Tesla vehicles will fall around the world.
There was also the announcement earlier this week that
Hertz
is selling one-third of its EV fleet. That stoked fears that Americans aren’t ready for EVs. It’s probably more accurate to say American car renters aren’t ready for EVs. It’s tough to take a rental EV on a road trip if the driver has little experience with an electric vehicle. Wedbush analyst Dan Ives called the situation a black eye for Hertz, not Tesla.
The Hertz announcement came as Cox Automotive published full-year sales data for 2023. Americans bought 1.2 million battery-electric vehicles last year, up 45% year over year.
Amid the selling of Tesla stock, ARK Invest’s Cathie Wood has been buying. She bought 94,733 shares of Tesla in the
ARK Innovation ETF
on Jan. 11, and 93,654 on Jan. 12.
ARK didn’t return a request for comment from Barron’s on Saturday. ARK is a Tesla bull and the stock is the second-largest position in the fund, next to
Coinbase,
representing about 8% of the portfolio. Wood just might be buying the dip.
As for when the selling might end, investors can look at the stock charts. Tesla took out “its 200-day moving average, which increases risk to the next move and more important support near $208,” said Fairlead Strategies co-founder and market technician, Katie Stockton. Technical analysts such as Stockton look at stock charts and patterns to get a sense of investor sentiment and where stocks will go over the short and medium term.
Tesla stock’s 200-day moving average is about $231 a share. It closed below that level on Thursday for the first time since November. Stocks sometimes have trouble dropping below or rising above significant moving averages. That’s a technical analysis observation that can reflect when investors feel like a stock has gotten too cheap or too expensive.
When a key level is taken out it can signal a change in investor thinking. Investors, in this instance, are looking more worried about EV pricing, competition, and the direction of interest rates.
Write to Al Root at allen.root@dowjones.com
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