Tesla’s stock is ending its tumultuous year with even more turbulence: It was up nearly 6% on Thursday, but still down more than 10% since last week. And another drop in its price target from Morgan Stanley doesn’t help.
Since the start of the year, the stock has fallen by around 70%. Morgan Stanley analysts said Thursday that the company’s stock price decline presented a buying opportunity, but they cut its price target from $330 per share to $250. Shares of Tesla are trading at $122, with the stock rising about 8% on Thursday.
Morgan Stanley still thinks the company is somewhat undervalued due to recent big sales, citing its lead over electric car competition and potential tax benefits from the Cut Inflation Act passed earlier this year. .
The losses, however, further dented the fortunes of one of the richest people in the world. According to the Bloomberg Billionaires Index, CEO Elon Musk is now worth $132 billion, less than half of what he was worth at the start of the year. He lost the title of richest person in the world two weeks ago to Bernard Arnault, the chairman of French luxury giant LVMH (LVMH).
A popular misconception has emerged about Elon Musk and Tesla: The mega-billionaire’s love affair with Twitter is the main reason why Tesla shares have lost so much value this year.
Even as Musk signals he may relinquish his title as CEO of Twitter, investors fear Tesla’s sales and earnings outlook will deteriorate. Sign of weakening demand: Tesla announced a rare sale. The company has offered two rebates to buyers who take delivery of a vehicle before the end of the year, initially offering a rebate of $3,750 earlier this month. Tesla then doubled that discount to $7,500 last Thursday.
“Tesla is clearly starting to see cracks in demand in China and the United States at a time when competition from electric vehicles is increasing across the board,” said Dan Ives, technology analyst at Wedbush Securities and a Tesla bull who has cut its price target for the stock last Friday from $250 to $175. “The price cuts that Tesla enacted were the straw that broke the camel’s back on the stock.”
Another reason Tesla’s stock is crashing: The US economy could tip into recession next year, hurting car sales. Musk said in a Twitter Spaces call two weeks ago that he expected the economy to be in a “severe recession” in 2023.
“I think there is going to be macro drama that is higher than people currently think,” he said, according to Reuters, adding that homes and cars will be “disproportionately affected” by economic conditions.
Part of the problem with Tesla’s stock price is that critics wonder if it was ever worth the trillion-dollar valuation it had at the start of the year. At its peak, Tesla was worth more than the world’s 12 largest automakers combined, despite having a fraction of the sales of one of them. Today it is worth $399 billion.
“It got a short-term lead,” said Gene Munster of Loup Ventures, another Tesla fan. “I still believe it can be a much bigger business. I think he will revisit those kinds of numbers. But it could take a long, long time to get there.
Tesla’s growth prospects – a sales growth target of 50% per year – have contributed to this valuation. He conceded in October that he will miss that sales target for this year.
The stock’s rise to dizzying heights – up 743% in 2020 alone – was driven by Musk’s reputation as the genius who would disrupt the massive global auto industry.
“Tesla was seen as a disruptive tech company, not an automaker, and a lot of that bounty is tied to Musk,” Ives said.
Tesla critics said much of its exorbitant valuation was based on promises Musk made about future products, many of which came years after they were originally promised.
A prime example is the Cybertruck, the Tesla pickup truck, first unveiled three years ago with promises that production would begin in 2021.
Now production is set to begin next year, with production ramping up in 2024, putting it years behind other electric pickup offerings from Ford and upstart EV maker Rivian, both of which have electric vans available for purchase today. It could also follow General Motors’ planned electric pickup offerings.
“Elon Musk has a pathological problem with the truth,” said Gordon Johnson, one of Tesla’s biggest critics among analysts. “When people say he’s a genius and an innovator, it’s based on all his promises that he never keeps.”
Johnson said Tesla shares will see a much steeper drop once they start pricing like other automakers rather than on promises. He said that for Tesla to meet its growth targets, it needs to build new factories almost every year, but new factories in Germany and Texas that opened in the spring are still not operating at full capacity. And he said his factory in China had to cut production due to weak market sales in the face of Covid restrictions.
“Demand in the United States has collapsed,” he said. “Two months ago, your wait time was two or three months. Now you can get one immediately. They will build more cars than they sell for a third straight quarter. This is the definition of excess capacity.
Tesla is still by far the largest maker of electric vehicles in the world, although that title is challenged in some key markets, by Volkswagen in Europe and BYD in China. And more competition comes from established automakers like Ford and GM.
That’s not to say Twitter hasn’t played a role in Tesla’s stock price plunge this year: Tesla shares have lost more than 65% of their value since Musk’s interest in Twitter sparked. was first revealed in April, down nearly 50% since he made the deal. end of October.
Investors were disappointed that Musk appeared to be paying for so much of his $44 billion Twitter buy by selling Tesla shares. Musk, Tesla’s largest shareholder, has sold $23 billion worth of Tesla stock since his Twitter interest became public in April.
During a Twitter Spaces call last week, Musk promised he was done selling shares of Tesla (TSLA) until at least 2024, if not beyond. But he broke his previous promise in April that he was done selling Tesla (TSLA) stock, selling $14.4 billion of those shares since then.
“It’s been a Pinocchio situation for Musk saying he’s done selling stocks. Investors want to see him walk, not just talk,” Ives said.