Tesla (NASDAQ:TSLA) stock has done a 180. The market by-and-large remains bullish as shares have held onto the lion’s share of their gains from recent months. Tesla zoomed back higher during April and May, thanks to progress rolling out its full self driving technology in China and updates about the robotaxi and lower priced model plans.
However, although resilience may be making you confident about the next big rally, keep in mind two things. First, signs of continued tough times keep emerging. Second, the key issues that affected the performance of TSLA in the first place remain far from being in the rearview mirror.
Tesla Stock: China Problems Continue
Investors may have plenty of reasons to be excited about TSLA right now. Besides the positives listed above, continued bullishness is perhaps being driven as well by the prospect of Tesla finally putting to rest the controversy surrounding CEO Elon Musk’s $56 billion compensation package.
Again though, look underneath the hood (figuratively, natch). Tesla continues to contend with problems in China. Although the EV maker’s Chinese sales were up 17% year-over-year last month, on a sequential basis, sales were down by 6.5%.
Worse yet, this isn’t the only warning sign that issues like competition continue to affect Chinese demand for Tesla vehicles.
As reported late last month, the company has slashed Model Y production at its Shanghai gigafactory. This development also suggests that Tesla’s troubles in China are getting worse, or at the very least not getting better right now.
When it comes to Tesla stock, investors may remain focused on the company’s post-slump prospects.
However, what if the China slump persists for even longer than expected? What if demand issues on this side of the Pacific aren’t improving much either? In fact, a recent development may signal that challenging times will continue stateside.
An EV Fire Sale is a Sign of the Tough Times
Last week, rental car company Hertz Global Holding (NASDAQ:HTZ) announced that it was holding an EV fire sale. Hertz is hurting, and a big reason for its current issues has to do with its ill-timed big bet on EV adoption.
Hertz bet on vehicle electrification too big and too hastily. Now, it’s trying to get them off its balance sheet for an average of $25,000 per vehicle. Admittedly, this fire sale may not be a major red flag for Tesla stock. After all, Hertz is only trying to unload a total of 20,000 EVs.
Hertz’s EV fleet includes vehicles from other automakers, not just Tesla. The impact of these vehicles hitting the market will probably not dramatically affect Tesla’s U.S. sales this quarter. Still, it could still be a red flag. It may be a sign of continued tough times for EV demand in the United States.
The fact that Hertz is taking massive depreciation losses on these Teslas could also convey to would-be car buyers a possible downside of buying a brand new model. This could affect how many cost-conscious EV buyers opt for a Tesla over comparable offerings.
Tread Carefully, as a Reversal Could Take Shape in the Coming Months
Even if tough times in China and the U.S. only continue for a little longer, it could still be bad news for TSLA. Continued global headwinds point to lackluster growth and falling margins persisting in the quarters ahead.
Pretty soon, all the Robotaxi hype in the world may not be enough to overshadow these problems. The market could again reassess whether TSLA should trade for nearly 70 times forward earnings, or if a discounted valuation makes more sense considering its manifold troubles.
Previously, we’ve pointed out that Tesla is a car company, not an AI pure play. The market has yet to fully warm up to this view, but once they do, a massive reversal for Tesla stock could take shape. Before this happens, take advantage of today’s resilience, and sell.
Tesla stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.