Hot Play or Overheated? Tesla’s 13-Day Win Streak Finally Ends

What do Southern Florida temperatures and Tesla, Inc. NASDAQ: TSLA shares have in common? Both are red hot these days.

Alongside the S&P 500’s return to bull market territory, the electric vehicle (EV) maker’s stock enjoyed a 13-day up streak beginning May 25th before waving the checkered flag on Flag Day. It has doubled year-to-date and, among S&P names, trails only Nvidia and Meta Platforms in terms of 2023 return.

Back within striking distance of last summer’s split-adjusted record high of $314.66, Tesla is leading a surge in growth stocks tied to upbeat market sentiment. With investors correctly anticipating a pause in the Fed’s rate hikes and Goldman putting recession odds at 1 in 4, pedal to the metal bulls have been driving EV makers and infrastructure players dramatically higher. Chinese automaker XPeng is already up 38% this month. Hydrogen fuel cell specialist Plug Power is up 29%.

The current trading environment is certainly supportive of momentum stocks like Tesla, but will the second half economy be the same? That’ll depend on whether or not the company’s recent growth drivers have more mileage.

Why Has Tesla Stock Doubled in 2023?

In response to weakened economic conditions and increased EV competition, Tesla has shifted into lower price gear. Average selling prices (ASPs) were down significantly during the first quarter, offsetting solid vehicle production and delivery growth. While this resulted in an uncharacteristic year-over-year earnings decline, at least for now the pivot seems to be sitting well with the market. 

The thought process: Teslas are becoming affordable to more car buyers which is expanding the company’s opportunity set and improving brand awareness. In theory, both are positives for the long-run even at the expense of near-term profitability. Wall Street’s estimate for Tesla’s 2023 earnings per share (EPS) implies a 15% profit decline.

At the same time, Tesla is expanding its charging network to strengthen a complementary revenue source that may turn into its biggest opportunity. With an industry-leading 15-minute/200 mile charge, Supercharger stations are popping up everywhere — perhaps strategically, just in time for improved availability to the masses. 

New deals with Ford and General Motors will soon make Supercharger stations available to new Ford and GM models. This suggests that leading U.S. automakers have conceded that if you can’t beat Tesla’s superior charging technology, join ‘em. Based on their combined production targets, Tech Crunch estimates that almost 750,000 new Ford and GM EVs could be on the roads next year — and twice that in 2025.

Then there’s a third piece to the Tesla puzzle that’s keeping the stock’s motor running. In Q1, the Energy Generation and Storage business generated 148% revenue growth thanks to an uptick in Powerwall and Megapack deployments. As was the case in the EV business, demand is outpacing production — which is a good problem to have.

So, while Tesla’s EV production and delivery numbers steal the headlines, the Elon Musk-led powerhouse now has three strengthening growth drivers at the wheel.

Is Tesla Stock Overbought?

From a chart perspective, Tesla shares have likely gone too far too fast. A smoking 97.5 relative strength indicator (RSI) reading is second only to the S&P 500’s Delta Air Lines, which is enjoying a 14-day win streak of its own. You can drive a Cybertruck through the $70 gap between Tesla’s current share price and its 50-day moving average. Along with Wednesday’s high volume downturn, this suggests the three-week rally may be overdone. 

But it doesn't mean Tesla’s longer-term uptrend can’t persist. There is still 17% upside to long-term resistance around $300. Even if a profit-taking pullback ensues, the recent buying pressure could very well boomerang the stock back toward $300. If it can push past there in good volume, fresh record highs could soon follow.

As usual, Wall Street’s 12-month price targets for Tesla are all over the map. In the past week alone, revised analyst targets have ranged from $200 to $335. 

At this stage, Tesla does look overheated. But if next month’s Q2 earnings report impresses and auxiliary businesses continue to perform well, there’s no reason this growth engine can’t keep chugging along.