Tesla Stock Forms Death Cross as Valuation Risks Rise

Key Insights

• Tesla stock formed a death-cross pattern on the daily chart.
• The company reported strong revenue but weaker earnings and free cash flow.
• Tesla’s elevated valuation remains vulnerable to slower profit growth.

Tesla stock extended its downward trend this week, reaching its lowest level since August 2025.

TSLA traded near $303 on Wednesday after falling for five consecutive sessions. The stock had declined nearly 40% from its record high of $498.83.

Tesla remained among the weakest-performing Magnificent Seven stocks this year.

The daily chart also showed a death-cross pattern, reinforcing the bearish technical structure. However, Tesla had entered oversold conditions, which could support a temporary rebound.

TSLA stock has been in a strong downward trend after reaching its all-time high of $498 earlier this year. This retreat continued last week after the company published its financial results, which showed that its gross margins narrowed in the second quarter.

The stock has now dropped below the key support level of $337, its lowest level on April 9 this year. Moving below that level confirmed that bears have prevailed.

Worse, the stock has now formed a death cross pattern, which is characterized by a crossover of the 50-day and 200-day Exponential Moving Averages (EMA). This crossover happened on July 23rd.

In most cases, this pattern normally leads to more downside over time. It normally confirms that the downward trend is continuing, which is a risky sign.

At the same time, the Average Directional Index (ADX) has continued rising and is now at 24, its highest level since May 16 this year. A rising ADX indicator normally sends color that the trend is gaining steam over time.

Therefore, these technicals suggest that Tesla stock will likely continue to fall in the near term. If this happens, the next important level to watch will be the psychological level of $250, which is about 18.25% below the current level.

To some extent, Tesla’s recent earnings showed the company was doing well, with revenue rising by double digits. This growth was driven by the recovery of its energy business during the quarter.

At the same time, its vehicle deliveries jumped sharply in the second quarter. This increase was likely because of the rising gasoline prices that pushed more customers to embrace electric vehicles.

Recent reporting also suggests that the company’s European business is doing well, with management boosting production in Germany.

Despite this progress, the company faces some major challenges. The first is that its margins are narrowing, a sign it is selling its vehicles at lower prices.

Another risk is that Tesla’s capital spending continue rising as the company invests in artificial intelligence (AI). It had a negative free cash flow in the second quarter, and Elon Musk has warned that the trend will continue. This performance is mostly due to the company’s plan to spend $25 billion on Terafab, its large chip plant in Texas.

Meanwhile, Tesla is now contending with rising competition from EV and ICE companies. Most of this competition is coming from China, where many companies like XPeng, Nio, BYD, and Li Auto are gaining market share. Just recently, data showed that Chinese EV companies exported over 1 million vehicles in July alone.

All this is happening at a time when concerns about its valuation remains. Tesla has a forward price-to-earnings ratio of 172, which is higher than most companies. In theory, a slow-growing company like Tesla should not trade at a premium. And if a premium exists, it shouldn’t be this large. For example, Nvidia, which is a dominant player in the AI space, has a forward multiple of just 21.

Additional valuation metrics indicate the company is highly overvalued. The forward PEG ratio is 6, well above the sector median of 1.55. It is also above the five-year average of 5.3.

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