After Today's Close Above $400, How Overbought is Tesla Stock?

Electric vehicle (EV) giant Tesla (TSLA) has been one of the biggest post-election stock winners, with the shares up 59.5% from their Nov. 5 closing price. Once a significant year-to-date underperformer, TSLA stock is now up 61.4% as we approach the final weeks of 2024.

Tesla's stock is currently at three-year highs, and closed Tuesday’s session above the round $400 level for the first time since Nov. 5, 2021. The stock's 14-day Relative Strength Index (RSI) is now at 76.04, well into overbought territory, which implies a pullback is possible in the short term. 

In the monthly December options series, which expires next Friday after the close, TSLA options traders have the key $400 level in their sights. This strike price is home to heavy open interest of 58,437 contracts - plus, speculators have stacked up another 41,227 contracts at the weekly December 13 400-strike call option, which traded volume in excess of 98,000 contracts today.

The surge in TSLA stock during the final stretch of this year has been largely driven by market optimism surrounding advancements in autonomous driving technology, as well as potential regulatory support from the incoming administration. The company's market capitalization now stands at approximately $1.25 trillion, with some bulls predicting a $2 trillion valuation on the horizon for 2025.

Analysts have raised their price targets in response, but the consensus rating of “Hold” reflects lingering caution, largely due to the stock's high valuation metrics. TSLA’s forward adjusted price/earnings (P/E) ratio is a steep 157.06 - which is a premium not only compared to industry averages, but also to Tesla’s own notoriously rich earnings multiples, which have averaged 114.13 over the past five years.

Overall, Tesla remains a strong contender in the EV market, but investors should be extremely cautious at these price levels, when the possibility of a correction or profit-taking is higher than usual.