S3 Partners Warns That Tesla Stock Is ‘Overbought.' What Could Come Next for TSLA Stock.

Globe and Mail

19-05-2025

Electric vehicle (EV) leader Tesla's (TSLA) stock was finally seeing some momentum after battling news of dwindling sales, CEO's Elon Musk's heightened focus on his government duties at the cost of the company, intense competitive pressure, and the impact of high tariffs on China and other key U.S. trading partners.
However, Matthew Unterman of financial data analytics firm S3 Partners may be raining on the parade. In recently published research, Unterman warned that Tesla stock "is flashing overbought technicals.' The stock's Relative Strength Index (RSI), a key indicator of momentum, had crossed 70 at the time the note was published, which points to the fact that the stock is overbought. The last time this happened was in December 2024, which followed a halving in the stock's price and a three-month-long correction. Investors should note that as of this writing, the 9-day RSI has moved slightly below 70 to 69.53.
Overall, the stock is down 16.1% on a year-to-date basis, and its market cap is currently at $1.1 trillion. So, should its potentially 'overbought' status deter investors from adding the stock to their portfolios now? Let's have a closer look.
Disappointing Q1 But Financials Steady
Tesla fell short of market expectations on both its top and bottom lines in the most recent quarter. Total revenue declined by 9% year-over-year, coming in at $19.3 billion, with automotive sales — its core business — experiencing a steep 20% drop to $13.9 billion. Other divisions of the company showed solid momentum, with the energy generation unit expanding revenue by 67% and the services business growing 15% from the same period last year to reach $2.7 billion and $2.6 billion, respectively.
Profitability took an even more pronounced hit. Earnings per share declined sharply by 40% to $0.27, significantly below the consensus forecast of $0.41, reflecting increased margin pressures and softer sales volumes.
Vehicle deliveries also softened, down 13% year-over-year to 336,681 units during the quarter.
However, the company demonstrated notable strength in cash generation. Cash flows from operating activities surged to $2.2 billion — well above the $242 million reported in the comparable quarter of the previous year. Additionally, Tesla returned to positive free cash flow, recording $664 million in the latest quarter, a marked turnaround from the $2.5 billion outflow a year earlier. The company exited the quarter with a robust liquidity position, holding $37 billion in cash, while maintaining a relatively modest $2.2 billion in short-term debt.
Exciting Future
Although Tesla's share price may face an uncertain short-term future due to its current overbought levels, a correction may provide investors an opportunity to load up on the shares of one of the most pivotal enterprises of this generation. This is an important situation in which timeframe and intent matter. Traders, particularly those who focus on momentum, may place a great deal of emphasis on an RSI above 70. However, long-term investors could benefit from buying shares on any pullback.
An immediate trigger to the upside could be in the very next month, as Tesla prepares to unveil its anticipated Robotaxi service alongside the Cybercab concept, developments I have previously discussed. These initiatives build upon the company's ongoing efforts in full self-driving (FSD) technology, and the company now plans to launch Robotaxi service in Austin in June.
A separate, but equally ambitious, opportunity for growth lies in the company's humanoid robot, Optimus. Musk believes the commercial opportunity attached to this initiative could eclipse $10 trillion. Tesla aims to have several thousand of these robots integrated into its manufacturing ecosystem before the close of 2025, with long-term plans targeting around a million operational units by the turn of the next decade.
Meanwhile, Tesla's energy storage segment — although currently modest in scale — is expanding rapidly. This is due in part to growing recognition among utility providers of its value in grid balancing, enabling energy to be stored during periods of surplus and deployed during peak demand intervals.
Another cornerstone of Tesla's evolving strategy is its growing commitment to artificial intelligence, underpinned by its proprietary Dojo Supercomputer. The decision to build Dojo offers Tesla the ability to manage its data workloads internally, cutting reliance on external vendors like Nvidia (NVDA), whose high-performance GPUs are not only expensive, but also increasingly scarce due to surging global demand.
To further reduce this dependency, Tesla debuted its in-house AI training chip — the D1 — at its 2021 AI Day. Manufactured by Taiwan Semiconductor Manufacturing Company (TSM), the D1 chip is able to tackle highly complex machine learning tasks with exceptional efficiency.
Through the development of its own chips and computing infrastructure, Tesla is positioning itself to lower operational expenses and gain tighter control over its AI pipeline, a move that could prove pivotal to sustaining its technological edge in the years ahead.
Analyst Opinions on TSLA Stock
Overall, the analyst community have deemed Tesla stock a 'Hold' with a mean target price of $284.11, which has already been surpassed.
However, the high target price of $465 denotes an upside potential of about 38% from current levels. Out of 41 analysts covering the stock, 16 have a 'Strong Buy' rating, two have a 'Moderate Buy' rating, 13 have a 'Hold' rating, and 10 have a 'Strong Sell' rating.