Tesla Stock is Under Pressure and at Risk of a Deep Implosion

Key Points

• Tesla stock is under mounting pressure due to an upcoming shareholder vote, weak sales, and poor data.
• Tesla and Elon Musk plan to spend billions on NVIDIA H100 chips this year as he builds out an AI empire. 
• Analysts are lowering the outlook for results and the stock price, creating a headwind for investors. 

Tesla’s NASDAQ: TSLA stock is under pressure and at risk of a deep implosion. The company’s high valuation alone makes it a target, and there are many risks for investors. Among them is the upcoming vote on CEO Elon Musk’s compensation package and a sluggish EV market. EV sales are slowing globally and significantly impact current operations and plans. The takeaway is that Tesla is amid a major turnaround, focused on the future, while faced with near-term obstacles that could derail the market and send the stock price down by 25% or more. 

The Future of Elon Musk’s AI Dreams Are in the Balance

Tesla shareholders face a critical vote on June 13th.  Elon Musk’s $56 billion controversial pay package is among the items for approval. Analysts estimate the empire will spend over $10 billion on AI chips alone in 2024 and rely on easy capital access.  Cutting the package would not only hinder Mr. Musk’s ability to fund advancements at SpaceX, The Boring Company, xAI, and Neurolink but could harm shareholder value. The purpose of the package is to keep Mr. Musk interested in Tesla. The fear is that he may deprioritize Tesla if forced to turn to other projects for cash flow. 

The flip side is that curbing Mr. Musk’s ample pay package would improve Tesla's cash flow, which also invests heavily in AI. Mr. Musk estimates Tesla will spend $3 to $4 billion on NVIDIA hardware this year as it builds its AI training centers and the DOJO supercomputer. Plans for the Texas Gigafactory include eventually housing 50,000 NVIDIA H-100s to help power its AI network. 

Tesla Sales Fall: 2024 Will be a Weak Year

Tesla’s sales data isn’t promising for this year. The company produced a significant decline in revenue for Q1, guided weakly, and the latest news is not promising. The latest sales data from China, the company’s 2nd-largest market, show the business improved sequentially, but sales are still down nearly 7% compared to last year. The slowdown is partly due to conditions and loss of market share as local models, including low-price offerings, resonate with consumers. Tesla is reported to have cut back on production in China and increased ad spending, which will negatively impact the margin. Margin is already an area of weakness, with price wars underway globally. 

Analysts have been lowering the bar for Q2 but may need to cut their estimates more. The consensus targets in early June forecast only a 3% YoY revenue decline, underestimating the risk posed by competition. Analysts are also cutting their price targets, setting the market up for a fall should the results fail to impress. 

MarketBeat tracks 33 analysts with current ratings on Tesla. This is significant and threatens the stock price due to the revision trend. The analysts have been cutting their ratings and price targets all year and have put the stock on MarketBeat’s Most Downgraded Stocks and Lowest Rated Stocks lists. These lists aggregate analysts' data and rank them based on ratings, price targets, and activity. 

Tesla is the 2nd most-downgraded auto stock this year, with 27 downward revisions, and the 78th lowest-rated stock. The analysts peg Tesla at Hold, but the sentiment is slipping, as is the price target. Consensus assumes fair value near the bottom of a trading range, and the analysts are leading the market to the low end of their target range, which is below consensus.

Tesla is at a Critical Turning Point

Tesla’s market is at a critical turning point. Good news could spur the market to rebound, but the technical outlook is not robust. The market is at the low end of a trading range and showing resistance at levels where it should show support. If the market follows through on the current signals, a move to retest the recent low to $137.50 is likely. The risk is that this market will fall below support at $137.50 and pave the way to $110 or lower.