TSLA Stock: More Bumps & Bruises Ahead?

Popular Posts: 50 Blue-Chip Dividend Stocks Increasing Payouts in Q1 2014TSLA Stock After the Run-Up: The Bullish & Bearish Cases for TeslaElon Musk on ’60 Minutes’: I Expected Tesla to Fail Recent Posts: TSLA Stock: More Bumps & Bruises Ahead? Facebook Ads: Real Problems, B.S. Outrage 50 Blue-Chip Dividend Stocks Increasing Payouts in Q1 2014 View All Posts

Editor's note: This column is the latest update in our Best Stocks for 2014 contest. Kyle Woodley's pick for the contest is Tesla Motors (TSLA).

Now is a weird time for Tesla Motors (TSLA) bulls.

TSLA stock kicked off the first two months of 2014 in a dead sprint, climbing by as much as 70% as of early March. And while I made Tesla stock my pick in the Best Stocks for 2014 contest, I never imagined TSLA would be on pace to double by Easter.

But that's OK. It's not going to.

After peaking at nearly $255 on March 4, TSLA stock has slammed the brakes hard, slumping roughly 15% while the S&P 500 has managed to at least stay level in that time.

Tesla stock holders (and prospective buyers) now find themselves in an interesting position of sitting on impressive year-to-date (40%) and 52-week gains (400%) … but also staring straight in the face of some serious recent weakness.

And it pains me to say that the recent weakness doesn’t seem to be over just yet.

What Has Been Weighing on TSLA Stock?

The short, sucky answer? A lot:

Plans for a "Gigafactory" meant to produce millions of electric-car batteries ginned up excitement, but also raised eyebrows. The Wall Street Journal reported on skepticism in the space — including from heads at Volkswagen (VLKAY) and battery maker Highpower International (HPJ). Now, even planned investment partner Panasonic (PC) now sounds iffy on the project, with company Kazuhiro Tsuga saying “the investment risk is definitely larger.” Not good. There also was Tesla's direct sales snafu. New Jersey Gov. Chris Christie huffed and puffed and (on March 11) successfully blew down Tesla's direct sales model, with the Motor Vehicle Commission approving a measure to enforce an already-existing ban on direct sales. On the flip side, Tesla has scored victories in New York and Ohio in the past month, and is making progress in Arizona (which has a little incentive on the board). Production of the Model X has been pushed further back, to 2015. Musk’s reasons — mostly having to do with focusing on bolstering Model S sales — are valid, but that doesn't really soften the blow of a longer wait for the much-anticipated addition to Tesla's line. To address the issue of battery fires in the Model S, TSLA added titanium shields and aluminum deflector plates to new vehicles and offered to install them for free in all its existing cars. Tesla's margins are excellent, and there's no hard number on the cost impact of the fix, but titanium ain't cheap. This definitely isn't going to add to Tesla's bottom line. What Now?

I won't belabor you with my bullish position on TSLA stock, but if you want, you can see it here. In short, Musk is a genius; Tesla products are quality and appeal to (and are priced for) the all-important luxury segment; and just given size and scale, TSLA has oh-so-much room to grow.

Still….

That Gigafactory concern isn't going away. While seemingly everyone and their brother has expressed hesitancy, Musk himself hasn’t. He could be right, and the Gigafactory could be a huge success, but sentiment is not in Tesla's favor here, and that could be enough to weigh on TSLA stock.

More importantly, Tesla isn't playing by itself anymore. At the turn of the month, TSLA shares actually begun to perk up a bit … but now they’ve been caught in the undertow pulling down the Nasdaq and a host of momentum stocks.

Click to Enlarge Tesla's technicals aren't all that grand, either.

TSLA stock recently broke below its 50-day MA, and while shares gave it a run Tuesday, they still failed to close above that level — one that roughly coincides with its 38.2% Fibonacci level. The next levels of support after that would be the 50% level around $200, and the 100-day MA around $181.

Meanwhile, relative strength remains low around 45, but not near the levels we saw before Tesla began its big bounce at the end of November.

However, should Tesla manage to retake its 50-day, we can quiet the short-term alarm.

Not-so-technically speaking, TSLA did eat a 35% loss late last year. So we're not exactly in uncharted territory. Nor would we be even with a significant loss from here.

Bottom Line

I know, I know. I picked TSLA stock to go all the way, and I’m personally long. Why am I being such a spoilsport?

Because if I'm being honest, things don't look great … right this minute.

That won't always be the case. I think Jon Markman and Best Stocks leader Emerge Energy Services LP (EMES) will be smelling Tesla's nonexistent fumes when the ball drops to bring in 2015.

If you're going to play around with a stock whose valuations are off the charts, has recorded triple-digit gains in no time flat, and is trying to revolutionize the auto and energy industries? Well … sometimes you need to swallow some Tums.

Investors who are still bullish on TSLA stock should just consider this a growing pain, keep monitoring shares and buy in when it appears the dipping's done.

Kyle Woodley is the Deputy Managing Editor of InvestorPlace. As of this writing, he was long TSLA. Contact him at @KyleWoodley.