Tesla’s Epic Rise and Fall: A Story of Unfulfilled Hopes
A SLIDE in Tesla on Friday (Mar 7) is capping off a round trip of epic proportions in the company’s shares.
A Bet on Politics Goes Awry
Expectations that the electric vehicle (EV) maker would benefit from CEO Elon Musk’s close relationship with US President Donald Trump made its stock one of the top gainers following the Nov 5 election. That bet, however, has been no match for growing anxiety about Tesla’s core business of selling cars.
Investor Fears
Tesla’s shares were down 4.6 per cent at 11.53 on Friday, on track to erase their entire US$700 billion post-election advance. The decline comes alongside a series of blows that have shaken investor confidence in recent weeks, from a January report showing that sales dropped for the first time in a decade last quarter to more recent evidence of Tesla losing its dominant position in Europe and China. Some investors have also grown worried that Musk’s foray into politics has become a distraction from his job as the EV giant’s CEO.
Experts’ Opinions
“The bet on Tesla’s shares soaring due to Musk’s political involvement has not worked out thus far,” said Adam Sarhan, founder of 50 Park Investments. “Investors who initially anticipated massive benefits from Musk’s political involvement got too excited, and now cooler heads are prevailing.”
Broader Market Environment
The broader market environment is also proving a headwind, with the speculative frenzy that pushed stocks to record highs following the election smothered by worries over US trade policy and economic growth. The S&P 500 is down more than 7 per cent from its high while the Nasdaq 100 has tumbled into a correction.
Analysts’ Concerns
Bank of America analyst John Murphy on Tuesday slashed his price target on the stock to US$380 from US$490, noting concerns about new car sales, lack of news on a potential low-cost model and risk to the company’s robotaxi launch.
Possible Rally
To be sure, the rapid decline in Tesla’s shares has pushed them into what chart followers call an oversold zone, opening the way for a potential short-term bounce, according to some technical analysts. Catalysts could include signs that sales are ticking higher, an update from the company on its robotaxi, or a return of risk appetite to equity markets.
Conclusion
Tesla’s shares have come a long way since the US election, but recent events have led to a significant decline. The company’s struggles to maintain its market share, combined with concerns over its valuation, have led to a sharp correction. While some experts predict a potential short-term bounce, the company’s long-term prospects remain uncertain.
FAQs
Q: What led to the decline in Tesla’s shares?
A: The decline was largely due to growing concerns over the company’s core business, including a drop in sales and a loss of market share in Europe and China, as well as concerns over CEO Elon Musk’s involvement in politics.
Q: What are some of the analysts’ concerns about Tesla’s shares?
A: Analysts have expressed concerns over new car sales, a lack of news on a potential low-cost model, and risks to the company’s robotaxi launch.
Q: Is there a potential for a rally in Tesla’s shares?
A: Yes, some experts predict a potential short-term bounce, citing the company’s oversold status and potential catalysts such as increased sales, an update on the robotaxi, or a return of risk appetite to equity markets.
Q: How does Tesla’s valuation compare to the broader market?
A: Tesla trades at 88 times forward earnings, compared to 21 for the S&P 500 Index, making it one of the most expensive stocks in the market.
