Tesla stocks plumb nearly 4% to $597 over sales worries, market volatility

When the stock of Tesla, the electric-car maker, was added to one of the world’s most important stock indexes in January, some analysts said the company’s shares might no longer jump up and down erratically and could behave more like those of blue-chip companies.

Investors had other ideas.

After months of bidding up Tesla stock, helping it join the S&P 500 index, they have been selling furiously in recent weeks. Over $270 billion has been wiped off Tesla’s stock market value since its share price peaked in January.

The price fell more than 10 per cent Friday morning before recovering most of the loss and closing the day down 3.8 per cent to $597. The steady losses since a few weeks ago, when shares briefly traded at $900, have wiped out about one-third of Tesla’s market value amid concerns about flagging sales and competition from other automakers that are finally selling electric vehicles many people want to buy.

Many investors have also pulled back from riskier stocks and investments in anticipation of rising interest rates.

Tesla now has a market value of about $575 billion, still far richer than any other automaker. The valuation reflects the belief among many investors that Tesla is revolutionizing the auto and energy industries and will eventually deal fatal blows to older and more established companies.

Read | India woos Tesla with offer of cheaper production costs than China

“Tesla was a cult stock for so long — and able to be that way in a market that was irrational,” said Vicki Bryan, chief executive of research firm Bond Angle. “But reality hits the road. That’s where we’re at.”

Analysts and sales data have suggested that Tesla is becoming less dominant in the U.S. and Chinese electric-car markets. Tesla lost market share last month in the United States to Ford Motor’s new electric Mustang Mach E, analysts at Morgan Stanley said Wednesday.

The China Passenger Car Association said Tesla sold 15,484 locally made cars in January. That was higher than a year earlier but lower than December’s total of 23,804. Tesla’s sales in China often fluctuate when the company exports batches of cars made at a Shanghai plant to Australia, Europe and elsewhere.

“Tesla has really benefited from that halo of, ‘It doesn’t really matter how many vehicles we sell this year or how much cash we burn,’” said David Whiston, a Morningstar analyst. “It’s all been, ‘Where are we going to be five or 10 years from now?’ But lately there’s been a bit more turbulence.”

Whiston added that Tesla’s share price was incredibly volatile and that it could be hard to deduce clear trends. “The way it fluctuates, I wouldn’t be surprised if it’s back above $700 next week,” he said.

Institutional investors may have been selling some of their stakes in Tesla this year, but the regulatory forms that would reveal such sales will not come out for weeks. Some big shareholders slashed their Tesla holdings last year. Baillie Gifford, a Scottish investment manager and a longtime Tesla shareholder, cut its position to just over 27 million shares at the end of last year, down from nearly 59 million at the end of June.

Also Read | Tesla temporarily halts production at Model 3 line in California

Tesla has long been a favoured target of investors who aim to profit from declines in the price of stocks. Known as short-sellers, they borrow shares and sell them, hoping to buy them back in the future at a lower price. If successful, short-sellers can pocket the difference between selling and buying prices, but the trades can go horribly wrong if the price of a stock rises a lot. That happened to some investors who had bet against the shares of GameStop, the video game retailer.

As Tesla’s stock soared, starting in late 2019, short-sellers would have lost billions of dollars on their bets, perhaps scaring some of them away from Tesla, which has gained wide popularity among individual investors, many of whom revere its chief executive, Elon Musk. In the middle of February, nearly 48 million Tesla shares had been sold short, according to the Nasdaq stock exchange, down from nearly 61 million at the end of 2020.

Short sellers lost nearly $41 billion on their Tesla bets last year, but the decline of the stock from its high has given them profits of nearly $14 billion, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, a market data firm.

The competitive threats to Tesla are growing. The Mustang Mach E, an electric SUV styled to resemble Ford’s sports car, has earned favourable reviews. Some auto critics and enthusiasts have said they like it more than Tesla’s Model Y, which is remarkable because many of the same people previously regarded Ford as an electric-car laggard.

Sergio Rodriguez, a consultant from St. Marys, Georgia, who owns a Tesla Model X, recently drove a Mach E across the country. Rodriguez said he planned to keep his Model X, despite some serious quality issues and slow responses by Tesla that he has described in YouTube videos and on electric-vehicle websites.

“I still love the Model X. In terms of performance, you want a thrill,” he said. “But you have to accept that it has a lot of imperfections. The Mach E is definitely built with quality, and it’s cool. You can’t help but look when it drives by.”

Also Read | There’s one big problem with electric cars

Last month, Ford sold 3,739 Mach Es, a tiny number compared with the tens of thousands of pickup trucks the company sells every month but respectable for an electric car. This month, Volkswagen is scheduled to begin delivering its electric SUV, the ID.4, in the United States. General Motors recently updated its electric compact, the Chevrolet Bolt, and introduced a larger, higher-riding version of the car.

Whatever the competition brings, Tesla has enough cash on hand to finance its operations for some time. It took advantage of its soaring stock price last year by selling more than $12 billion of new stock to investors and had more than $19 billion in cash at the end of 2020. Tesla spent $1.5 billion on Bitcoin early this year, and even if the company takes big losses on that wager, it will still have significant cash on hand.

The company, which did not respond to a request for comment, has come a long way from the dark days of 2018 and 2019, when some analysts wondered if it would survive as an independent business. Musk was struggling with increasing the production of Tesla’s most affordable car, the Model 3, and described the company’s problems as “manufacturing hell.”

Despite the recent drop, Tesla’s stock price is still up more than 300 per cent over the past 12 months. And its market value is more than the combined market capitalization of Toyota Motor, Volkswagen, Daimler, GM and Ford — companies that sell many more cars than Tesla.

Of course, anytime a company is valued well beyond its peers, it can be vulnerable to a sell-off if investors begin to have even small doubts. Even after the stock plunged from its high, Wall Street is extremely optimistic about Tesla. The stock trades at 144 times the profit that analysts expect the company to earn this year, a stratospheric valuation. Much hope in the market is placed on Tesla’s having a big slice of a much larger market for electric vehicles, which is why analysts expect the company’s profits to more than double by the end of 2025.

Investors who believed such forecasts helped pushed the stock up after late 2019, which drew in other investors. “As long as money is flooding in, you can make anything a self-fulfilling prophecy,” Bryan of Bond Angle said.