Why the Tesla Stock Rally Is Fading Today

Tesla (NASDAQ: TSLA) shares have been soaring since the U.S. election in early November. But as the trading week comes to a close, the stock is on track to have its second consecutive losing day.

As of 12:35 p.m. ET Friday, Tesla shares were down 4.3%. Yet, they have still soared by 70% over the past three months. Most of that gain has come after Donald Trump won the U.S. presidential election with backing from Tesla CEO Elon Musk.

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Tesla needs a record fourth quarter

The pause in the rally is coming as we approach the end of the year, with investors realizing the company may not hit 2023 electric vehicle (EV) delivery numbers. Tesla must deliver about 515,000 EVs in the fourth quarter to match the 1.8 million units shipped in 2023.

A push to ship vehicles at the end of the year is common, however. Tesla's record quarterly delivery was almost 485,000 vehicles in last year's fourth quarter. But analysts, on average, think the company might come up just shy of Tesla's target this year, predicting 510,000 unit sales.

After the stock's monster run over the last several months, a miss on fourth-quarter shipments will likely push the stock lower. Some investors are betting that's what will come when Tesla releases its fourth-quarter production and delivery figures next week.

One bright spot that could outperform expectations is Tesla's sales in China. Reports show that the fourth quarter is looking strong for Tesla's China sales, with nearly 22,000 EVs sold during the first week of this month. That would be the best week of the fourth quarter.

Long-term investors shouldn't worry too much about quarterly data, though. Much of the recent run in Tesla stock came from expectations that its autonomous driving technology is getting closer to reality, with the White House potentially easing regulatory hurdles for Musk and his team. If Tesla can offer leading self-driving software to customers, it could be a huge revenue source for the company. Investors who believe that's coming should buy the dip.

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Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.