Tesla Stock: Crash or Rally Coming?

Tesla Stock Bubble

Recently, U.S. Federal Reserve Chairman Jerome Powell warned of “bubble-like conditions” in the stock market. It’s rare for him to talk like this. The statement – after the most recent FOMC meeting – sent share prices briefly on a downward spiral. Central banks usually don’t like to mention such developments. Why? Because the Fed and other central banks are partly responsible for frothy market conditions. After all, their ultra-loose monetary policy extensively encourages price bubbles. A prime example of a bubble is U.S. electric car manufacturer Tesla (NASDAQ:TSLA).

Big Numbers for Elon Musk

Last Tuesday, the electric vehicle giant presented its quarterly figures. These turned out brilliantly. Sales and profits came in above expectations. The firm saw its highest quarterly profit ever. The company is now in the black for the seventh straight quarter in a row.

However, these profits didn’t come from the operating business (car sales). The gains came from trading in bitcoin and emissions certificates. The quarterly profit of $438 million would have been a whopping loss
without these “side businesses” with revenues of $518 million.

This means that the cars themselves have not yet brought any economic success. Bitcoin trading can still be seen as a clever diversification of corporate reserves. But even this trade has nothing to do with the core business of car manufacturing.

Tesla Stock: Example of a Bubble?

I see Tesla’s valuation as the real problem.

The share currently has a price/earnings ratio (P/E) of a “completely insane” 178.45. In comparison, that of competitor Volkswagen is around 10. In addition, Volkswagen, BMW & Co. are currently racing to catch up and take more and more market share from Tesla.

The favorably valued German automakers are thus cutting themselves a large slice of the Tesla pie and scoring points with their classic core competencies (quality, design, experience, customer proximity, etc.).

Whether Tesla will survive this offensive by German competitors is a matter of faith. Early indications are evident in the company’s chart.

Tesla Stock Bubble

After all, the stock has already been correcting since the beginning of the year. The supposedly good quarterly figures, therefore, no longer led to new record highs.

That’s a warning signal. On the other hand, however, the trend-leading 200-day line has been decently defended so far. And in March, efforts to resume the rally were intensified, albeit without much success so far.

In my opinion, if the share price falls sustainably below $550, the risks for Tesla shareholders will increase dramatically. But only then. If the price regains its footing, it’s likely to test the all-time highs at $900.

In the event of an upward breakout, prices of even $1,500 are possible, even if the valuation would then be completely insane. The markets aren’t rational. We know this. And Tesla proves it.

I am staying away from Tesla as this stock has potential to bubble.

Opportunity and risk are not in any reasonable relation to each other.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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