Tesla faces unprecedented market plunge, sparks concern over growth Elon Mask
In a stunning turn of events, Tesla, the electric vehicle (EV) giant, witnessed a sharp decline of over 12% in its stock value, resulting in an $80 billion reduction in market value in a single day.
This plunge was triggered by CEO Elon Musk's cautionary remarks regarding a potential slowdown in sales growth for the current year.
Read more: Tesla recalls 1.62 mln vehicles in China: Regulator
Musk disclosed that despite previous price reductions impacting profit margins, the company anticipates a further drop in growth, attributed to the shift towards more affordable next-generation electric vehicles, scheduled for production at its Texas facility in the latter half of 2025.
Market Reaction
Investors and the market reacted sharply to Musk's statements, with Tesla experiencing its most significant intraday percentage loss in over a year.
The $80 billion loss contributed to an overall market capitalization decline of approximately $210 billion for the month. Analysts at TD Cowen expressed disappointment over Tesla's fourth-quarter revenue and profit falling below expectations, marking a challenging period for the company.
Impact on Electric Vehicle Industry
The repercussions of Tesla's market decline extended beyond the company itself, affecting shares of other electric vehicle makers such as Rivian Automotive Inc, Lucid Group, and Fisker.
Read more: Tesla recalls more than 80,000 cars
These companies experienced declines ranging from 4.7% to 8.8%. The electric vehicle industry has been grappling with a demand slowdown for over a year, and Tesla's recent price cuts are expected to exacerbate challenges faced by both startups and established automakers, including Ford.
Challenges and Production Hurdles
Tesla's move towards more affordable electric vehicles, while potentially increasing deliveries, presents production challenges due to the incorporation of cutting-edge technologies.
The market's response reflects concerns about Tesla's ability to navigate these challenges successfully. Analysts have highlighted the need for Tesla to compete with BYD in China and face increased competition globally, potentially impacting operating margins.
Analyst Ratings and Short Sellers' Profit
Tesla witnessed downgrades from at least nine brokerages, while seven raised their ratings. Short sellers targeting Tesla have reaped considerable profits, making it the most lucrative US short trade this year, according to data and analytics firm Ortex.
Despite this, Tesla's stock trades at almost 60 times its 12-month forward earnings estimates, surpassing the valuation of other prominent stocks like Apple, Microsoft, and Nvidia.
Concerns Over Valuation
Analysts express concerns that Tesla's increasing resemblance to a traditional auto company, combined with potential weaknesses in sales growth and profit margins, might challenge its current premium valuation.
With the stock holding an average "hold" rating and a median price target of $225, representing a 23% increase from Thursday's closing price, the road ahead for Tesla appears uncertain.
Tesla's market plunge and the subsequent concerns over growth have sent shockwaves through the electric vehicle industry and the broader financial markets.
As the company faces challenges in maintaining profit margins and navigating increased competition, investors and analysts are closely watching for strategic moves and operational improvements to restore confidence in the company's long-term prospects.
The next few quarters will be crucial in determining whether Tesla can overcome the current challenges and regain its position as a leader in the rapidly evolving electric vehicle market.
Source: Agencies
