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Many market participants believe Tesla is overextended. They blame it on the elections and Elon Musk’s political activities. But few realize that from the middle of April to just before the elections, the stock had already run up 75%! The Tesla rally didn’t start after Trump’s victory, it had begun 6 months earlier. The stock was already in an uptrend when the elections happened.
A bigger move in 2025 can’t be ruled out, though short-term catalysts aren't very positive. Traders were spooked by the recent delivery numbers, but the stock has recovered well since. Tesla reported its first YoY deliveries decline. This was mainly caused by increasing competition from Western and Chinese EV makers. The Chinese threat is so strong that even with tariffs in place, it seems hard to keep them out. This is of course partially possible because of the government subsidies that Chinese automakers receive. It is simply not possible for Western car makers to compete with China on cost.
Tesla’s car business is now heavily dependent on new models. The $7500 tax rebate can only help drive up the sales so much. The company needs to figure out a way to increase car sales, and it seems launching new models is the only way to do that. The failure of cybertruck doesn’t give investors a lot of hope in this regard but it is the sub $30,000 price point that Tesla needs to succeed at if it wants its car business to boom as before.
Currently, this price range is heavily dominated by Chinese companies, who have almost driven out Western car makers in their own country. In the last 5 years, China’s market share of EV sales in their own country has doubled as foreign car makers struggle to operate in the country. On the global stage, China’s EV market share has already exceeded 75%!
Tesla of course has a good presence in China. It owns a Gigafactory in Shanghai which services many countries, including China. If Tesla doesn't move quickly, it will lose its market share in China and it will be a huge task to get it back. Elon Musk keeps telling us that Tesla isn’t a car company and is now more of an AI company. That’s true to an extent, but going by the company’s core business, it is clear that this part of Elon Musk’s business needs more attention.
Tesla is 23rd on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 99 hedge fund portfolios held TSLA at the end of the third quarter which was 85 in the previous quarter. While we acknowledge the potential of TSLA as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.