Electric vehicle (EV) behemoth Tesla (TSLA) has surged past a critical juncture from a technical perspective. Significantly, the stock has surpassed its 200-day simple moving average (SMA), marking the potential commencement of a prolonged bullish trajectory. In a notable upswing, the stock garnered a 5.24% boost, surging to a closing price of $207.83 in yesterday’s trading session.

Breaking Through: TSLA Surges Past the 200-Day Moving Average

Charting recent movements, the upswing coincides with a high-profile rendezvous where Tesla’s enigmatic CEO Elon Musk engaged in dialogue with Republican presidential aspirant Donald Trump on X. Amidst accolades for Musk and Tesla’s product line, Trump reiterated his aversion to zero-emission vehicles, vowing to overturn pro-EV mandates if he clinches the election.

Despite this recent uptick, Tesla’s stock remains beleaguered, down approximately 16% year-to-date. The increased interest rates have cast a shadow on consumer spending for significant purchases – a hurdle acknowledged by Musk himself. Nevertheless, as inflation eases and joblessness persists, speculation mounts around a potential rate cut by the Federal Reserve in September. As Tesla navigates this multifaceted economic landscape while triumphing over a key technical threshold, investors are left pondering whether it is opportune to dive into Tesla shares or opt to secure profits. Let’s unpack this further.

The EV Market Conundrum: TSLA Grappling with the Fallout

The electric vehicle arena is grappling with challenges as consumer enthusiasm retreats, prompted by apprehensions surrounding charging infrastructure, high ownership expenses, and range anxieties. Tesla is bearing the brunt, witnessing a slump in deliveries notwithstanding generous incentives. The initial quarter of 2024 witnessed an 8.5% year-over-year plunge in Tesla’s deliveries – the first contraction since 2020, followed by a 5% downturn in the subsequent quarter. The company has issued caution concerning its vehicle volume growth for 2024, projecting a deceleration compared to 2023 figures. This slowdown is attributed to endeavors to introduce its upcoming-generation vehicle at Gigafactory Texas, coupled with macroeconomic insecurities and dwindling EV demand.

Tesla’s automotive gross margins are under pressure owing to elevated production costs and steep price slashes. Automotive gross margins (sans regulatory credits) slumped to a five-year low of 14.6% in the last documented quarter. With sustained challenges in cost of goods sold and frequent price reductions by Tesla, margins are poised to remain strained.

The intensifying rivalry from established auto giants like General Motors and Ford, along with emerging players like Rivian (RIVN) and Lucid, is encircling Tesla. This mounting competition has eroded Tesla’s U.S. market share from 63% in 2022 to 50%. Tesla’s dominance is at risk of erosion due to fierce competition. Additionally, concerns loom over Tesla’s footing in the Chinese market, which teems with domestic contenders like BYD Co Ltd, NIO Inc., XPeng, and Li, among others.

Placing a Bet on Tesla’s Foray into AI & Robotaxis

Musk is steering investors to perceive Tesla predominantly through the prism of AI and robotics, transcending its identity as merely an automotive entity. He asserted, “The way to think of Tesla is almost entirely in terms of solving autonomy and being able to turn on that autonomy for a gigantic fleet. We really should be thought of as an AI-robotics company. If you value Tesla as just an auto company, it’s just the wrong framework. If somebody doesn’t believe that Tesla will solve autonomy, I think they should not be an investor in the company.”

The unveiling of Tesla’s humanoid robot project (Optimus), the rollout of Full Self-Driving (FSD) Beta software (V12.5), and plans to unveil its robotaxi or Cybercab in October herald promising strides for the firm. Tesla anticipates having robotaxis launched next year. Simultaneously, the firm aims to manufacture several thousand units of its new Optimus robots for internal use by 2025. The envisioned deployment of Tesla-supervised FSD technology in China and Europe by year-end is poised to elevate the company’s trajectory.

Scheduled for unveiling on October 10, Tesla’s Robotaxi unveiling underscores the disparity between product showcases and commercial launches, compounded by Tesla’s track record of missing timelines. Notably, while Cybertruck was unveiled in 2019 with an expected rollout by 2021, the inaugural deliveries commenced only in November 2023.

Despite this backdrop, investor sentiment and analyst community exude confidence in Musk’s substantial bets on AI and autonomy. Renowned American investor Cathie Wood has long been optimistic about Tesla’s robotaxi and autonomous aspirations.

Is Tesla’s Premium Valuation Justified?

Tesla unquestionably commands a lofty valuation, reflective of its pioneering edge and burgeoning growth vis-a-vis traditional auto companies. Nonetheless, our outlook deems the valuation somewhat stretched, given the prevailing headwinds.

Presently, TSLA shares are trading at 6.17 times forward sales, a valuation significantly higher than industry benchmarks.

The company’s ability to deliver on its commitments, particularly concerning a budget-friendly EV model and advancements in autonomous driving technology, is pivotal. Success in these spheres could herald a new era of expansion for Tesla. Conversely, any missteps could precipitate formidable challenges for this pioneer in the EV realm. At present, the existing valuation appears precarious. TSLA has been assigned a Value Score of F.

Exercise Caution: Hold Off on TSLA Investment

Tesla has long been a torchbearer in the EV industry, with its horizons now expanding into energy, robotics, and AI realms. While the promise of self-driving vehicles and humanoid robots is exhilarating, the duration for these innovations to yield substantial returns remains nebulous. With mounting competition in the EV sector, Musk’s emphasis on autonomous driving and AI could herald transformative prospects. Nonetheless, investing in Tesla solely on the back of its audacious promises might be premature at this juncture.

The Zacks Consensus anticipates a 26.6% year-over-year contraction in Tesla’s 2024 earnings per share (EPS), alongside downward revisions in earnings projections.