Tesla has witnessed an impressive rally in its stock price, propelling its market value towards the trillion-dollar mark. However, the surge in price since the onset of 2023 has led to concerns regarding the company’s valuation, resulting in downgrades of its stock. Goldman Sachs, Morgan Stanley, and Barclays have all downgraded Tesla, although they have simultaneously increased their price targets. Tesla’s shares have experienced a remarkable 175% surge since January, advancing from a low of $101.81 to a high of $276.99 posted on the 21 ^st of June.

One factor contributing to Tesla’s rally is the growing excitement surrounding Artificial Intelligence (AI). The company’s shares have also benefited from a series of positive developments in recent months, including deals made by rival automakers Ford and General Motors to gain access to Tesla’s charging network. Such moves could potentially establish Tesla’s chargers as the industry standard. The announcement of China’s substantial tax breaks worth $72.3 billion for electric vehicles and other green cars has further boosted Tesla’s stock.

While the market recognizes Tesla’s long-term potential, there are concerns about the difficult pricing environment for new vehicles, which could weigh on the company’s automotive non-GAAP gross margin this year. Despite the positive outlook for Tesla’s full self-driving capabilities, enhanced by the potential of AI, and the decision to open Tesla’s Supercharger network to third parties, these factors are unlikely to significantly impact this year’s earnings.

Tesla reported lower margins in the first quarter and earnings remain vulnerable to negative revisions as it faces competition in China and potential price cuts, despite Tesla’s strong growth prospects in the long-term and its position as a global EV leader.

Tesla’s share price performance is notorious for its volatility as the stock is prone to significant fluctuations and rapid changes. Being a popular growth tech stock, Tesla is often priced at high valuations due to its potential for disruptive innovation. Currently, the stock trades at a lofty 73 times earnings and 50 times the estimated earnings for 2024, while most traditional auto stocks trade at much lower multiples.

Tesla is set to announce its global second-quarter delivery data on the weekend, providing insight into the effectiveness of the company’s price cuts and discounts in attracting consumers. Wall Street predicts a significant increase in Tesla deliveries, with estimates suggesting growth to 445,000 vehicles. This growth is partly attributed to easier year-over-year comparisons with Q2 2022 when Tesla’s Shanghai plant experienced Covid-related shutdowns.

Source: TradingView

After experiencing a 75% drop in 2022 – its largest annual stock decline ever, Tesla’s shares have more than doubled in value this year, closing at $276.99 on the 21 ^st of June, pushing the Relative Strength Index into extremely overbought territory. Concerns have been raised among prominent Wall Street analysts as well, regarding the rapid pace of Tesla’s rally, questioning the company’s AI credentials, also suggesting that the stock has become overbought in the short-term, and leading to a number of downgrades.

Last week Tesla’s share price rebounded close to its long-term down trend line crossing at $285 where strong resistance was encountered. The proximity to dynamic resistance combined with strongly overbought momentum conditions triggered a sharp selloff over the past three trading sessions. While the medium-term trend remains up, in the short-term further weakness is possible.

Overall, over the long-term the outlook for Tesla remains positive, marked by its potential for disruptive innovation and its leadership in the EV market. However, in the short-term concerns regarding the stock’s rapid surge remain as the share price have run too far and too fast, prompting a need for caution among investors.

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