There is a Possibility That Tesla is Forming a Double Top Pattern. How to Trade It From Here

Tesla Inc. (TSLA) is currently navigating a series of growing challenges, as recent declines in both vehicle deliveries and revenue point to weakening demand across key global markets. While Tesla has long been praised for its robust profitability and impressive growth figures, its lofty stock valuation leaves the company vulnerable to significant downside risks.

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Adding to Tesla’s struggles is the intensifying competition from Chinese electric vehicle (EV) manufacturers, who are steadily chipping away at Tesla’s once-dominant market share. This combination of declining performance, stiff competition, and an overstretched valuation has created what some analysts see as an appealing opportunity to introduce bearish positions on Tesla’s stock.

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From a market timing perspective, now appears to be an opportune moment to consider bearish exposure to TSLA. The stock recently surged to the $300 resistance level, where it has formed a classic double-top chart pattern — a technical indicator often associated with a looming reversal.

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This pattern, along with the stock’s overbought conditions, suggests that Tesla could soon face downward pressure. Analysts are eyeing a downside target near $220, which offers a favorable risk-to-reward setup for traders looking to bet against the stock’s near-term movements.

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Tesla has long been celebrated for trading at a hefty premium compared to its automotive peers, thanks largely to its industry-leading growth and profitability numbers. However, this premium also comes with substantial risks, particularly as signs of overvaluation and softening business performance begin to emerge.

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For context, Tesla’s forward price-to-earnings (PE) ratio stands at an eye-popping 144 times, compared to the industry average of just 11 times. Its net profit margin sits at 7%, well ahead of the industry average of 3%. Expected earnings per share (EPS) growth for Tesla is forecasted at 17%, while the broader industry expects only about 10% growth.

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Similarly, Tesla’s expected revenue growth is pegged at 13%, dwarfing the industry average of 3%. Despite these strong figures, Tesla’s premium valuation could magnify the negative effects if performance falters further.

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The bearish thesis centers on two main pillars: weakening demand and rising competitive pressure. In the first quarter of 2025, Tesla reported a 13% year-over-year decline in deliveries, down to 336,681 vehicles. The picture is even grimmer in specific regions, with sales in Europe plunging by 37% year over year and U.S. sales slipping by 15% year over year.

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Analysts suggest that beyond typical market dynamics, Tesla’s struggles are being compounded by a brand crisis, partly linked to CEO Elon Musk’s controversial political activities, which may be alienating some consumers.

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On the competitive front, Tesla is facing fierce pressure from Chinese EV makers, who are rapidly gaining ground in global markets. In Europe, Tesla’s market share dropped sharply, falling from 17.9% to just 9.3% in the first quarter of 2025.

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High inventory levels further point to an oversupply problem, highlighting the gap between production capacity and actual customer demand. This competitive erosion and inventory buildup are red flags for investors assessing Tesla’s near-term outlook.

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To potentially profit from this bearish setup, one suggested options trade is a put vertical spread targeting Tesla’s June 20, 2025 expiration date. Specifically, this trade involves purchasing the $275 put option at $22.63 and simultaneously selling the $225 put option at $6.00, resulting in a net debit of $16.63, or $1,663 per spread.

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The maximum potential reward on this trade is $3,337 if Tesla’s stock closes above $275 at expiration, while the maximum risk is the $1,663 premium paid if Tesla closes below $225. The breakeven point for the trade is calculated at $258.37.

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This strategy is designed to capitalize on Tesla’s potential decline, using the combination of technical signals, valuation concerns, and competitive challenges as a backdrop. By selling premium within a defined risk structure, traders can position themselves to benefit if Tesla’s stock comes under renewed selling pressure.

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Given Tesla’s current structural issues — including falling demand, shrinking market share, and heightened competition — this put vertical strategy offers a compelling way to gain bearish exposure to one of the market’s most high-profile and richly valued names.

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While Tesla remains a powerful force in the EV space, the near-term signals suggest that traders and investors may have an opportunity to profit from the company’s current vulnerabilities.

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