We use cookies to provide some features and experiences in QOSHE

More information  .  Close
Aa Aa Aa
- A +

3 Reasons That Tesla Could be a Great Short in the Second Half of 2021

1 14 0

The combination of the stimulus, Fed policy, and lockdowns was a potent combination that led to extraordinary moves in many growth and momentum stocks in 2020. One of the most notable of these stocks was Tesla (TSLA), which climbed by 1,185% between the March 2020 stock market bottom and its peak in mid-January.

Since January TSLA and many other growth stocks retreated, as money flowed into value and cyclical stocks due to rising interest rates and increasing optimism about the economy returning to normal. However, over the last couple of months, many technology and growth stocks have been rallying and recovered the bulk of their losses, with a handful even making new highs.

TSLA is up 25% since mid-May and bulls are optimistic shares will continue climbing higher. I am not one of those bulls. I view the recent rally in TSLA as an opportunity for investors to take a short position in the stock. The major vulnerabilities that I see in Tesla are slowing sales in China, slowing sales growth as competitors are launching new EV models and some of CEO and founder Elon Musk’s allure wearing off.

Slowing Chinese Sales

UBS recently cut Tesla’s target price to $660 from $730 due to several, negative factors. However, one of its main factors is that “Tesla's demand momentum in China is slowing, and our checks on the ground suggest that BEVs (battery electric vehicles) from domestic brands are gaining further ground vs. Tesla, which may trigger additional pricing action by Tesla and consequently lower gross margins.”

In essence, China is one of Tesla’s largest growth markets, and it’s facing an onslaught of competition from domestic and international companies. UBS is concerned that it may force Tesla to cut........

© Entrepreneur

Get it on Google Play