Tesla (TSLA) is creating a new entry point as the automaker expands its artificial intelligence efforts. What should a potential TSLA investor know?
Tesla shares look set to rise as the Elon Musk-led company is up nearly 10% so far this week on the back of a bullish report from Morgan Stanley.
According to IBD’s MarketSmith charting platform, the automaker’s shares are forming a cup pattern with a pivot of 299.29. The stock is currently 9% below that level. An even earlier entry for aggressive traders could occur if Tesla shares break out of their September 12 high of 278.39. This is about six dollars above current levels.
This new base, which has been taking shape since July, comes after a 15-week period of consolidation in Tesla shares that lasted from February to June.
“If a handle starts to form and (Tesla stock) starts to fall on light volume, that could give us an opportunity to add to the position if it breaks above yesterday’s high,” IBD’s Ken Shreve said on Investor’s Business Daily’s “IBD Live” on Tuesday, referring to the near-term spike on Sept. 12.
With any trade, investors should manage risk and have a predefined exit plan. Typically, if a stock is trading 7% to 8% below its entry price, solid risk management rules mean it’s a good time to exit.
Tesla Stock: An “Amazon” Moment?
The electric vehicle company saw its shares rise earlier this week after Morgan Stanley raised shares of Tesla to overweight from equal weight with a price target of 400. The analyst cited software value and Tesla’s services, comparing them to Amazon Web Services and how AWS has helped drive and define growth a Amazon (AMZN).
“This is a name that has been on the list in the past,” Shreve said. According to him, Tesla’s fundamentals remain intact despite the intensifying competition dragging down the shares.
Automakers ranging from incumbents such as Mercedes-Benz (MBGAF) e Volkswagen (VWAGY) new entrants like it Polished (LCID) e No (NIO) have rapidly introduced electric vehicles to markets around the world. “I still think this stock has the potential to do well due to exceptional revenue growth,” Shreve said of Tesla.
Tesla and its Chinese electric vehicle competition face potential difficulties as the EU’s European Commission has launched an investigation into whether vehicles made in China have received production subsidies from the Chinese government. Shares of Li Auto (THERE), XPeng (XPEV) e No (NIO) fell following the news.
While Tesla shares are believed to benefit from the investigation, the automaker would also be subject to the probe as it produces cars at its Gigafactory plant in Shanghai.
The expected offers stimulate optimism
A flurry of news continues to surround the automaker, including Tesla’s plan to buy $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, adds to Tesla’s $1 billion spending on Indian-sourced components in 2022. Meanwhile, a Mexico state governor said Monday that Tesla will invest $15 billion dollars in two years at its Gigafactory in Nuevo Leon. .
Tesla CEO Elon Musk also continues to make headlines, with Walter Isaacson publishing his new biography on the entrepreneur this week.
Tesla stock is ranked second 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 ranked 42nd on the IBD 50 list of top growth stocks.
However, the final decision on trading Tesla depends on the investor’s risk management, the IBD think tank says. “You can have your thesis, you can buy stocks with momentum and strength,” said IBD’s Ali Coram. “But ultimately, if things aren’t moving in your favor, you have to be willing to cut and run.”
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