Tesla Stock's Comeback Rally Has Officially Started

Key Points

• Despite a broad risk-on sentiment, Tesla's shares have been markedly underperforming this year. 
• However, a run of gains since April suggests that a corner may have been turned and the downtrend is over.
• Recent analyst upgrades call for as much as 30% upside from here, and investors should be excited.

It's been a funny year for investors and shares of Tesla Inc. NASDAQ: TSLA. This year, it has broken its long track record of delivering outperformance even when the broader market is rallying—and broken well. While the benchmark S&P 500 index is up an impressive 15% this year already, shares of the electric vehicle (EV) giant are down 20%.

Investors would have been forgiven for thinking that Tesla's downtrend, which started more than two years ago, would have been firmly broken by now. After all, inflation, the curse of consumer products like EVs, has been retreating since last year. Expectations have been rising for a cut to interest rates; broadly speaking, the general market sentiment has not been this risk-on since the manic highs of 2021. 

Tesla’s Underperformance: Navigating Challenging EV Market Conditions

Given Tesla's strong past performance during tough times, their underperformance this year is striking. However, several factors have combined to create challenging conditions for the EV sector. 

The big issue has been a marketwide cooling of demand for EVs, which has been compounded by Tesla's efforts to cut prices. This has, in effect, done little to move the needle. Instead, the company's margins have contracted while its revenue outlook has darkened. A horrible earnings report at the end of April, which missed analyst expectations across the board, was only the latest confirmation that Tesla is in a very deep hole. 

However, there are reasons to think it has started to dig itself out of this hole. Since hitting a 52-week low in the aftermath of that report, Tesla shares have only gone up, tacking on more than 40% in the past two months. While it has a long way to go to start beating the S&P 500 on the year, against the latter's 9%, it's an impressive run. 

Tesla Shares Get Bullish Boost from Analyst Upgrades

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