Tesla stock is setting up a new entry point as the automaker expands its artificial intelligence efforts. What does a potential TSLA investor need to know?
Tesla stock looks poised to move higher as the Elon Musk-led firm is up nearly 10% so far this week on the heels of a bullish Morgan Stanley report.
Shares of the automaker are forming a cup pattern with a pivot of 299.29, according to IBD's MarketSmith chart platform. The stock is currently 9% below that level. An even earlier entry for aggressive traders could be seen if Tesla stock takes out its Sept. 12 high of 278.39. That's about six bucks above current levels.
This new base, which has been taking shape since July, comes after a 15-week consolidation period of Tesla shares that lasted from February to June.
"If a handle starts to form and (Tesla stock) starts to drift lower in light volume, it could give us an opportunity to add to the position if it were to move above yesterday's high," said IBD's Ken Shreve on Investor's Business Daily's "IBD Live" show Tuesday, referring to that Sept. 12 short-term peak.
With any trade, investors should manage risk and have a predefined exit plan. Typically, if a stock trades 7% to 8% below your entry price, solid risk-management rules indicate that's a good time to get out.
Tesla Stock: An 'Amazon' Moment?
The electric-vehicle company saw its shares pop earlier this week after Morgan Stanley upgraded Tesla stock to overweight from equal weight with a price target of 400. The analyst cited value from Tesla's software and services, comparing them to Amazon Web Services and how AWS helped drive and define growth at Amazon.
"This is a name that's been on Leaderboard in the past," said Shreve. He says Tesla's fundamentals remain intact despite heightened competition dragging on shares.
Automakers ranging from incumbents like Mercedes-Benz and Volkswagen to new entrants like Lucid and Nio have been rapidly introducing electric vehicles in markets worldwide. "I still think this stock has the potential to do well because of outstanding revenue growth," said Shreve about Tesla.
Tesla and its China-based electric-vehicle competition face potential headwinds as the EU's European Commission launched a probe into whether vehicles made in China received production subsidies from the Chinese government. Shares of Li Auto, XPeng and Nio moved lower on the news.
While Tesla stock is seen to benefit from the probes, the automaker would also be subject to the investigation since it produces cars at its Gigafactory Shanghai plant.
Anticipated Deals Drive Optimism
A flurry of news continues to surround the automaker, including Tesla's plan to purchase $1.9 billion in auto parts from India, according to multiple reports citing an Indian government official.
The deal, announced Wednesday by Commerce Minister Piyush Goyal, comes atop of Tesla's $1 billion in spending on India-sourced components in 2022. Meanwhile, on Monday a Mexico state governor said Tesla would invest $15 billion across two years on its Gigafactory in Nuevo Leon.
Tesla CEO Elon Musk also continues to make headlines of his own, with Walter Isaacson releasing his new biography on the entrepreneur this week.
Tesla stock is ranked No. 2 in the automaker industry group and has a Composite Rating of 96. Chinese automaker Li Auto holds the top spot in the group. Tesla is No. 42 in the IBD 50 list of leading growth stocks.
Still, the final call on trading Tesla rests on an investor's risk management, IBD's panel of experts say. "You can have your thesis, you can buy stocks with momentum and strength," said IBD's Ali Coram. "But at the end of the day, if it's not moving in your favor, you have to be willing to cut and run."
