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Market Insights

Tesla's Stock Tumbles Into Oversold Territory

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What a year it’s been for Tesla shareholders. Peak to trough, Tesla’s share price has fallen by over 60%. The recent furore surrounding Musk’s focus on Twitter has added fuel to the fire, pushing the stock into oversold territory. Time to buy or more pain to come?

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If you take a journey around social media, the speed of the Tesla selloff is getting some serious attention. Tesla’s the worst megacap performer so far this week at -14.38%. However, the RSI is oversold on the daily timeframe, so maybe time for a bounce?

Aside from the chart, is there a fundamental catalyst?

Perhaps. Musk has promised to seek out a new Twitter CEO “as soon as I find someone foolish enough to take the job! After that, I will just run the software & servers teams”.

Although there’s no confirmation of who or when as yet, this announcement could calm a few investors who had a case of the Twitter Jitters. Essentially, those worrying that even the enigmatic Musk couldn’t split his attention between the two companies and/or may be forced to sell Tesla stock to raise funds and prop up Twitter.

Closer to home, Electrek reported that Tesla is to implement a wave of cost-cutting, by way of hiring freezes and layoffs.

Tesla has communicated to some employees that it is stopping hiring for now. On top of the hiring freeze, Tesla also said that teams will be expected to make layoffs during the first quarter of 2023.

It’s not clear how extensive the hiring freeze will be as Tesla is still planning to expand in some manufacturing locations. No further details were made available at this time.

The moves come as Tesla’s stock has been falling all year despite the company’s financials hitting new records virtually every quarter.

Cost-cutting news could help to counteract any of the demand headwinds that became apparent via discounts and other incentives for Tesla purchasers.

On top of that, Musk has been vocal about the negative economic backdrop and the impact of monetary tightening on stock prices.

In a testy Twitter conversation with Ross Gerber, Musk advised the investment advisor to “go back and read your old Securities Analysis 101 textbook”, adding

“As bank savings account interest rates, which are guaranteed, start to approach stock market returns, which are not guaranteed, people will increasingly move their money out of stocks into cash, thus causing stocks to drop.”

Critics were quick to point out that this phenomenon was impacting Tesla more than others, especially since the Twitter acquisition.

The debate about Tesla’s actual fair value will continue to rumble on, but the prospect of cost-cutting measures and a new Twitter CEO may be sufficient to stem the bleed for now, and potentially drive the share price higher as new longs initiate and shorts cover their positions.

If that’s the case, perhaps a move back up towards the October 2020 high of 154.92 could be on the cards as the market further digests developments.

Not investment advice. Past performance does not guarantee or predict future performance.

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