Tesla's 50-day moving average is about to cross the 200-day, a bearish signal. Meanwhile, vehicle sales are slumping, while the valuation remains high.

Tesla Inc. investors need to ask themselves: How do you price in sentiment?

Chief Executive Elon Musk's involvement in Washington and his leadership role in the so-called Department of Governmental Efficiency, or DOGE, have been driving the narrative lately on Tesla's stock $(TSLA)$ - for better or worse.

The stock rallied in the final quarter of 2024, running up by 120% between late October and mid-December, partly on a strong sales outlook and partly because of Musk's closeness to President Donald Trump. Investors hoped his ties to the administration would be positive for Tesla.

Now, though, those ties have become a liability for the electric-vehicle maker. People are vandalizing Tesla dealerships, charging stations and cars driven by its customers. Even those who aren't actively boycotting the brand may be deterred from owning a Tesla right now.

The company is heavily consumer-facing. About 77% of its revenue comes from consumer vehicles, and Tesla also sells energy products to consumers. So brand sentiment and its impact on sales matters. The truth is, very few high-profile brands have seen backlash and political boycotts to the degree Tesla is now experiencing.

Bud Light serves as one example, but to a lesser extent. Following an April 2023 boycott of Bud Light, Anheuser-Busch InBev SA's (BE:ABI) stock tumbled by about 16% in a little over a month. Sales for Bud Light haven't recovered. So gauging the fallout from backlash against Tesla ahead of its future earnings could be difficult.

Bob Lang, founder and chief strategist at Explosive Options, suggests turning to soft data to try and determine how consumers feel about the brand. A survey by YouGov from March showed that 37% of respondents said that Musk is either part of or wholly the reason they wouldn't consider owning or leasing a Tesla.

What does the data tell us about Tesla's stock?

Its technicals look rough

If you're a trader, you could probably resort to an endless number of indicators to gauge short term moves. But for longer-term investors, the 50-day and 200-day simple moving averages matter because they show long-term trends.

As of Friday morning, Tesla was near the "death cross", which is when the 50-day moving average falls below the 200-day moving average, a bearish signal.

"Why is that significant? It means that big institutional money is going to think twice about buying below this after the crossover is done," Lang said.

Below is a chart from FactSet that shows the near cross of the 50-day moving average to the 200-day moving average as of Friday's close. At current rates, the 50-day can cross over the 200-day on Monday.

Tesla nearing death cross on moving averages.

How are valuations looking?

Valuing Tesla isn't only difficult because of negative brand sentiment. The company is also kind of in a league of its own. In other words, comparing it to other automakers is a big mistake, said Garrett Nelson, vice president of equity research at CFRA. The stock trades more like a tech name than an auto one, meaning that its price-to-earnings ratio is elevated.

Tesla is currently trading at a forward P/E ratio of 85.1. In contrast, Ford $(F)$ trades at a forward P/E of just 7, based on 12-month consensus estimates of analysts polled by FactSet.

Investors justify a higher P/E for companies that are big growers, but Lang questions whether Tesla is deserving of such a large multiple if it isn't making large strides in revenue growth for its automotive sales.

"It's quite risky for an investor to be in Tesla right here, even as the stock has fallen some 40%," Lang said.

Perhaps we can step back further and compare Tesla to the S&P 500 SPX. A March report from Research Affiliate's Rob Arnott breaks down how investors who bet on EV specialists, including Tesla, fared relative to the benchmark index. It shows a slight outperformance for Tesla toward the end of 2024, with a much choppier ride along the way.

The chart below from Research Affiliates shows the S&P 500 benchmarked at $1, while EV companies start at $1 and move relative to their percentage gain or loss from the S&P 500's price.

What about the fundamentals?

Tesla isn't starting off the year on solid footing. In January, it reported that fourth-quarter revenue from auto sales was down by 8% from a year earlier. It went from having a massive 80% share of the U.S. EV market in 2020 to a 49% share in 2024, according to data from Kelley Blue Book compiled by CFRA.

In North America, its competition comes from traditional automakers with EV offerings. Nelson believes one reason Tesla lost market share is that it hasn't introduced new models other than the Cybertruck since the first deliveries of the Model Y five years ago.

China is another big market for Tesla, and the company generates about 21% of its revenue there. However, revenue from that part of the market was down by 4.9% from a year ago, according to FactSet data. It's a trend that could continue as tensions over trade wars muster up national sentiment and push more Chinese consumers to opt for vehicles from its main Chinese competitor, BYD Co. Ltd. (CN:002594).

As for the impact from tariffs, this may be Tesla's one saving grace since the EV maker has most of its factories in the U.S. However, on Friday, Forbes reported that the ability to order the Model S sedan and Model X SUV in China was no longer an option on Tesla's website. Also on Friday, China increased its tariffs on U.S. imports to 125%.

Seth Goldstein, a Morningstar $(MORN)$ strategist, told MarketWatch that Chinese sales of the Model S and X are a small part of Tesla's total business, so he doesn't expect a big impact on revenue.

Goldstein is more concerned about Tesla's energy-generation and storage businesses, which rely on Chinese battery cells. The company may need to raise prices on batteries for its energy storage system, making them less competitive, he noted.

The positives

Now that we've pounded out the risks, there are three arguments in favor of Tesla's stock. The first is that the stock's price has been beaten down so much that its cheapness has created a margin of safety for investors who want to buy now.

Sell-side price targets, which have been steep, are still bullish because the stock is trading below analysts' updated levels. For example, analysts polled by FactSet have a mean price target of $342. More than half of analyst tracked by FactSet remain bullish at 29 out of 56 analysts. Tesla's stock was trading near $252 at Friday's close.

Plus: The United States is now an emerging market. Invest accordingly.

Morningstar's fair value, which takes into consideration fundamentals, uncertainty, and volatility is $250.

The second thing to note is that sentiment can quickly shift. Nelson noted that a Politico article on April 2, about Musk leaving DOGE, sent the stock rallying in the days that followed, despite a disappointing sales report released that same day. While Musk said the report was untrue, the episode brings us to an important point about Tesla's stock, which is that sentiment is a key driver of its price.

Finally, Tesla has growing strengths outside of its EV offerings. Its unique positioning in autonomous vehicles and robotics could mean it has a bright future in the world of artificial-intelligence development. Additionally, the energy generation and storage parts of its business, while still small, are rapidly growing. As Tesla's automotive revenue fell by 6% last year, revenue from Tesla's energy sector grew by about 67%. Admittedly, energy only represents about 10% of Tesla's sales for now.