Tesla Stock and Nio Stock got crushed today, plummeting about 8% each. Both are down quite a bit from their all time highs. But it feels like they are getting destroyed. Congrats to those that held from the March lows. However, if you have recently bought these two, you may be starting to sweat. Generally, we are permabulls at Parabolically, but we are starting to notice a significant portion of the froth in the market beginning to slow down. This could mean nothing, which is the most likely scenario…or the start of something big. So, for this article we ask: Nio and Tesla Stock Are Plummeting, Is the EV Bubble Over?
What happened with Tesla and Nio?
Tesla and Nio both fell about 8% today. Not a huge deal, especially considering they have been a particularly strong rocket ride on the way up.
Tesla finished the day at $714, down a little after hours to $710. While NIO finished at $50.68. Also down a little after hours to $50.
There was really no news to force this deep plunge. Even stranger is the fact that Elon Musk is up about $1 Billion USD on his unprecedentedly interesting decision to invest $1.5B of Tesla’s cash into Bitcoin.
Although Bitcoin experienced a flash crash today as well, Tesla is still up significantly on that trade.
Also strange is the fact that NIO is down about a week before it is supposed to publish earnings.
Usually stonks have a nice pump into earnings. And NIO still can, there is no denying that.
While price movement in one day is generally not that important, the fact that both of these EV titans have fallen below some pretty significant support levels. This includes the 50 and 63 day moving averages.
Only the 200 day moving average below, and it is yet to be seen if this dump is a “generational buying opportunity.”
What is the Catalyst?
We have a few theories on why the market is dwindling down. Which coincides with the weakness in Nio and Tesla stock.
- Garden variety slowdown after a massive year of virtually uninterrupted market advance. (very likely)
- Market working in reverse of the 2020 Bear Market (less likely, but very dangerous)
The first one needs no explanation. Markets get overheated and have to take a break. No big deal. Happens every so often.
Judging by how low volatility is, this seems to be likely.
However, #2 is the one everyone should be worried about, especially if you just recently started buying.
If your portfolio is heavily skewed towards the EV sector, you should be worried.
EV Bubble Microcosm
Essentially, multiple market sectors experienced unprecedented levels of stock and option volume following the 2020 COVID crash.
In particular, the EV sector bubble is probably just as insane, or more, than the crypto bubble. (yes, these are artificially created bubbles, not organic growth).
To give you a glimpse of how insane the EV pump is, just look at NIO. At its height, the company’s market cap was almost $100 Billion. Not that bad right?
Take a look at their latest 10Q from November:
$100 Billion company…with less than $1B revenue per quarter, and a quarterly loss. That’s not too bad, but still nowhere near reaching the valuation for a long time.
Tesla has a similar issue. At its height of $900/share ($4500 pre-split), Tesla sported a lofty ~1200 P/E ratio.
Although I have been the biggest Tesla and Elon Musk bull since 2016, even I have to admit that the P/E ratio was a bit high.
Tesla and NIO are not the only ones. Just look at the entire sector. Plug Power, Blink Charging, KNDI, SOLO, Workhorse, Nikola and even Lucid Motors.
Many of these stocks are up over 1000% from the lows, and some stocks like NIO are up 5000% from their all time lows.
Tesla & Nio Stock Prediction
Conclusively, there are signs everywhere that the massive Fed fueled bubble is popping, no doubt. Not only that, but there are multiple warning signs that the market has become too frothy, and is at a very high risk of a steep correction.
Possibly a reversal of the 2020 bull market as aforementioned…
Simple. The historic bull market following last year’s COVID pandemic crash was fueled by excessive money printing, in the form of stimulus checks, massive unemployment printing, 0% interest rates for eternity and, of course, boredom from house arrest during the pandemic.
Since we are, for the most part, permabulls, we give this bear market thesis a 35% probability rate. Which is still low.
The reason for such a low probability is…you guessed it!
More stimulus is coming.
IF the federal government decides to print more stimulus, that is…
Another reason we are still keeping our bullish outlook, at least on Tesla (besides infinity stimulus money BRRR), is ARK’s purchases lately. (ARK has about $58 Billion in Assets Under Management, so they are a big deal).
What do you think? Is the EV Bubble over?
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