Mohit Oberoi
Tesla (NYSE: TSLA) stock fell over 11% in yesterday’s price action which took its YTD losses to almost 70%. The stock has now surpassed Meta Platforms to become the worst-performing major tech stock of the year.
Before Meta Platforms, Netflix was the worst-performing major tech stock of the year. However, it recouped some of its losses amid optimism over its ad-supported tier. Meta Platforms also recovered from its 2022 lows. However, Tesla has continued to hit new lows and has now closed with losses for seven consecutive trading days.
It was valued in excess of $1.2 trillion last year but now its market cap has slumped below $350 billion. In aggregate, the stock has lost around $895 billion in market cap from its peak. Amazon, whose stock has lost over 50% this year has the dubious distinction of becoming the first company ever to lose over $1 trillion in market cap.
Tesla stock is not far from that milestone as the EV (electric vehicle) market sentiment continues to sour. The crash in Tesla stock has also cost its CEO Elon Musk his position as the world’s richest person.
Last year, Musk became the richest person ever with a net worth in excess of $300 billion. He has now slipped to the second rank behind Bernard Arnault.
Demand Concerns Take a Toll on Tesla Stock
Tesla stock has been sliding ever since Musk acquired Twitter. However, the sell-off has only deepened this month and TSLA looks on track for its worst month ever on record. With only a couple of days remaining this year, TSLA is also on track for its worst quarter and worst year ever.
While Musk’s Twitter antics did irk even the most notable TSLA stock bulls, the recent crash is more due to demand concerns. The company has now suspended production in China. While in its response, Tesla China said that the plant has been suspended for maintenance work, markets are not buying the argument.
Incidentally, Tesla would again suspend production in January for the Chinese Lunar New Year. Usually, companies operating in China do plant maintenance work during the Lunar New Year holidays.
Tesla is Offering Discounts amid a Possible Demand Slowdown
Even in the US, Tesla increased the discount for buyers taking delivery of Model 3/Y in December to $7,500. It also increased the credit to Canadian buyers to $5,000.
Beginning next year, Tesla cars would be eligible for the federal EV tax credit as the law does away with the upper limit. After the passage of the Inflation Reduction Act, Wolfe Research upgraded Tesla stock to a buy and raised its earnings estimates.
While bulls believe that the discount is due to the $7,500 EV tax credit that Tesla cars would be eligible from next year, many others see it as a red flag for a demand slowdown.
Musk agreed to Step Down from Twitter
Musk has agreed to step down from Twitter and also said that he won’t sell any Tesla shares until about 2025. However, even these announcements failed to trigger a rally in TSLA stock. Musk has also blamed rising interest rates for the fall in Tesla stock.
He also called upon Fed chair Jerome Powell to cut rates and said that more rate hikes would amplify the recession. Most economists believe that US inflation would come down in 2023 partially because of the high base year effect. High inflation took a toll on US stocks in 2022 but some investments can do well in periods of high inflation.
Tesla Q4 Delivery Report Would be Released Next Week
Next week, Tesla would release the delivery report for the fourth quarter of 2022. Wedbush analyst Dan Ives who was once among the most vocal Tesla stock bulls lowered the company’s Q4 2022 delivery guidance to 410,000 vehicles, down from his previous forecast of 450,000. Consensus estimates call for deliveries of around 422,000 cars in the quarter.
Ives is meanwhile apprehensive about the outlook for EV demand. He said, “With China the core linchpin to the Tesla bull thesis, worries are growing around what the softening demand picture looks like for 2023 given the dark macro clouds and increasing domestic EV competition.”
Bulls Get Worried about TSLA Stock
He added, “At the same time that Tesla is cutting prices and inventory is starting to build globally in face of a likely global recession, (CEO Elon) Musk is viewed as ‘asleep at the wheel’ from a leadership perspective for Tesla at the time investors need a CEO to navigate this Category 5 storm.”
All said the next big trigger for Tesla stock would be the upcoming delivery report. Markets would closely follow the announcement for insights into the demand environment for Tesla cars.
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This article was written for Business 2 Community by Mohit Oberoi.
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