(Bloomberg) – The slide in shares of Tesla Inc. accelerated on Tuesday as a report of a plan to temporarily halt production at its plant in China reignited fears over demand risks and sent the stock on its longest dry spell since 2018 brought.
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Shares in the Elon Musk-led company fell as much as 8.3% to $112.88, marking the seventh straight day of declines. The electric vehicle maker’s market valuation has shrunk to about $357 billion, below those of Walmart Inc., JPMorgan Chase & Co. and Nvidia Corp. This latest sell-off will cost Tesla its position among the top 10 highest-rated companies in the S&P 500 Index, a distinction it has held since joining the benchmark in December 2020.
The news of reduced production in Shanghai follows last week’s report that Tesla offered US consumers a $7,500 rebate for delivery of its two highest-volume models before the end of the year, adding to concerns that demand is slowing. For Tesla, whose valuation is biased toward its future growth prospects, those concerns reflect significant risk.
“Most of the stock’s weakness this year can be attributed to indicators showing slowing global demand,” said Craig Irwin, an analyst at Roth Capital Partners. Tesla’s estimated sales growth “is still amazing, but not an amazing $385 billion market valuation,” he said, referring to the reading late last week.
Analysts, on average, expect sales to grow 54% in 2022 and 37% in 2023, data compiled by Bloomberg shows.
Hopes that Tesla will be the leading EV company in an electric-car-dominated future led to a spectacular eight-fold rally in shares in 2020, securing its spot in the S&P 500 and at times making it the fifth most valuable stock on the meter.
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But this year the settlement came just as quickly. It’s lost about two-thirds of its value on Musk’s Twitter acquisition and its attendant distractions, investor jitters about growth stocks, and more recently fears that high inflation and rising interest rates will dampen consumer enthusiasm for electric vehicles.
“In our view, the company’s market share has peaked and concerns about its over-reliance on China for profits and the factory shutdown are weighing on the stock,” said Jeffrey Osborne, an analyst at Cowen. Tesla “seems to have used up their backlog as they resort to promotions to move cars and delivery times are 1-2 weeks in most parts of the world.”
Wall Street analysts began issuing warnings about electric vehicle demand earlier this month, with the 12-month average price target for Tesla falling 10% since late November. Meanwhile, the median adjusted earnings estimate for 2022 is down over 4% compared to three months ago.
Tesla has seen nearly $700 billion in shareholder value evaporate this year. The collapse is among the biggest contributors to the S&P 500’s 2022 decline after Amazon.com Inc., Microsoft Corp. and Apple Inc.
Still, the overall analyst stance on Tesla remains upbeat, with the highest percentage of buy or equivalent ratings since early 2015.
“Despite the stock’s performance, Tesla’s innovation trajectory appears to be accelerating, a stark contrast to other big tech companies whose incremental product updates are stagnant at best,” Canaccord Genuity analyst George Gianarikas wrote in a note last week. He added that “green shoots” of the recovery could appear in 2023.
(Updates stock movement, adds Jefferie’s comment in eighth paragraph.)
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