Tesla Stock Stuck in a Bear Market: Top Reasons It May Rebound Soon

Tesla stock has crashed into a technical bear market. It moved from the year-to-date high of $498 to the current $327. This retreat continued after the company published its financial results.

That showed its free cash flow continued to narrow. Still, there are reasons to believe that the stock will bounce back eventually.

Tesla Stock to Benefit From Strong Vehicle Demand

One of the main bullish catalysts for TSLA stock is that demand for its vehicles continues to rise in key markets. A report released this week showed that its vehicles are seeing strong demand in China, where competition has intensified.

Its Model Y sold 180,000 vehicles, topping comparable brands like Li Auto’s i6 and Xiaomi’s SU7. This growth is happening despite its higher price, which ranges between 263,500 and 313,500 yuan.

The company is also seeing strong demand in Europe, where it is boosting its supply in Germany. It has boosted capacity in the country by about 20% and is now making about 7,500 vehicles a week. To achieve that, the company is now hiring about 1,000 employees.

Tesla is benefiting from its strong demand. Many manufacturers in the US and Germany are pivoting back to their Internal Combustion Engine (ICE) vehicles. That’s also working in its favor.

The most recent vehicle delivery numbers indicated that Tesla delivered 480,000 vehicles in total. The company produced 450,000 during the quarter.

This growth helped to fuel its revenue growth, with the automotive segment making over $20 billion. Its total revenue soared by 26% to $28.3 billion.

Capital Expenditure Growth is a Major Short-Term Issue

TSLA stock price has dived in the past few months because its free cash flow has turned negative. That’s because of its large investments.

Together with SpaceX, it is investing billions of dollars in a large semiconductor manufacturing plant. This plant will make chips for the two companies and other tech names.

Tesla has also announced that it will spend $10 billion to build a solar panel manufacturing plant in Texas. This announcement means that its free cash flows will remain in the red for a while.

However, history shows that these investments may be worth it in the future. Furthermore, the company may benefit by bringing its chip manufacturing in-house. Demand for this chip business may jump if China decides to invade Taiwan.

Analysts Are Still Optimistic about TSLA Stock

Top analysts remain optimistic that the Tesla stock price will bounce back. Cathie Wood has made it the biggest holding in its flagship ETFs. Also, Stephen Gengaro, a Stifel analyst, placed a target of $491.

On the other hand, Tom Narayan of Royal Bank of Canada placed a target of $500. Baird, Deutsche Bank, and Piper Sandler have targets of $475, $420, and $450, respectively.

These analysts point to its positioning in the automotive industry and its growing role in the energy sector. They view the negative free cash flow as a temporary issue.

Tesla Stock May Fill the Fair Value Gap

The daily chart shows that the TSLA stock has been in a strong downward trend in the past few months. This sell-off intensified after its recent earnings report. This highlighted that its costs were rising.

The stock formed a fair value gap after its earnings and is now attempting to fill it. It’s a move that will be confirmed if it rises above the key resistance level of $338, its lowest level on April 8. If this happens, the next key level to watch will be at $369.88, its lowest point on June 26 and July 20.