Stock price "free fall" style plummeted by 40%! Tesla, Inc. (TSLA.US) falling out of the trillion dollar club may just be the beginning.

As Tesla, Inc. (TSLA.US) stock price continues to fall, some investors are preparing for even bigger potential declines in the future. The electric car company led by Musk has seen its stock price drop by about 40% from its peak at the end of 2024, with the decline accelerating recently as data shows a nearly halving of Tesla's car sales in Europe in January. This week's 17% drop in stock price indicates that traders are starting to feel uneasy about the slowdown in Tesla's core automotive business. For a stock whose fluctuations depend largely on investor sentiment rather than fundamentals, this is not good news. "The real challenge for expensive stocks like Tesla, Inc. lies in determining its bottom," said Steve Sosnick, Chief Strategist at Interactive Brokers Group, Inc. Class A. "Since Tesla, Inc. has long defied traditional valuation standards, its bottom is more dependent on investor sentiment rather than the conventional indicators that value investors might use." Tesla, Inc. has been facing troubles this year. After the U.S. presidential election, investors bet on Musk benefiting from his close relationship with President Trump, causing the stock price to soar. However, in January of this year, the company reported weak fourth-quarter delivery data, with annual sales seeing their first decline in over a decade, leading to reduced investor confidence. Subsequent financial reports showed quarterly profits below expectations, while the company also lowered its sales outlook for 2025. This week, Tesla, Inc.'s market value fell below $1 trillion for the first time since November of last year, placing it behind Berkshire Hathaway (BRK.A.US) and Broadcom Inc. (AVGO.US) in the ranking of the most valuable companies in the U.S. It is just one step away from tying the record for the longest consecutive decline. Lack of Catalysts Currently, there are few catalysts that could drive Tesla, Inc.'s stock price higher. Analysts predict that Tesla, Inc. will not make any meaningful updates to its fully autonomous driving car plans in the short term. Recently, Tesla, Inc.'s FSD assisted driving feature officially launched in China with a subscription price of 64,000 RMB. However, compared to this, competitor BYD Company Limited (01211) stated earlier this month that almost all their models will come equipped with advanced driving assistance features for free. Additionally, investors are worried about Musk's focus on political affairs and hope he will spend more time managing the electric car manufacturer. Another reason for caution is Tesla, Inc.'s high valuation. Tesla, Inc.'s forward price-to-earnings ratio is 92 times, while the S&P 500 index is at 21 times and the average for large tech stocks is at 28 times. The recent drop in its stock price comes at a time of overall weakness in the market, as the S&P 500 index has fallen by about 5% from its historical high this month. Any of the above factors may be reasons why some investors are preparing for more volatility rather than buying on the dip. One indicator measuring options positions - the implied skew of one-month options - turned bearish for the first time since November of last year last week, indicating that traders are seeking protection against future price declines. The premium paid by options traders to hedge against a drop in Tesla, Inc.'s stock price has reached the highest level since the market crash in August of last year. Technical strategists who use chart analysis to predict stock movements are also cautious. One reason is the stock's strong downward momentum and its history of sharp fluctuations. Mark Newton, head of technical strategy at Fundstrat, expects the stock to bounce back from the $275 level, which implies a decrease of about 2.5% from Thursday's closing price. He stated that if it falls below this level, the stock may further test the support level at $260, a level it reached before the election. Indeed, even the most bearish investors on Tesla, Inc. understand that even if the fundamentals look bad, the sentiment around the stock could quickly change. A recent example occurred during the rebound after the election, when the company's stock price almost doubled in just 29 trading days. However, David Mazza, CEO of Roundhill Financial, states that investors hoping for a turnaround may face a difficult period. He said, "We expect Tesla, Inc. to continue to be under pressure in the short term, as investors weigh the benefits of Musk's 'first-mover' premium against the struggles of the electric car business in strategically important markets. Given these conflicting narratives, it's difficult to say what the right direction for this stock is."