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Updated January 25th, 2024 at 18:43 IST

Tesla stocks slump after Musk’s cautionary note on sales

The news had a ripple effect, impacting other EV manufacturers such as Rivian Automotive Inc, Lucid Group, and Fisker,

Business Desk
Elon Musk
File photo of Elon Musk. | Image:AP
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Tesla sales growth: Tesla experienced an over 8 per cent decline in its stock value following CEO Elon Musk's cautionary note that sales growth would decelerate this year, despite ongoing price reductions impacting profit margins. Musk attributed the anticipated slowdown to the company's focus on introducing a more affordable next-generation electric vehicle at its Texas factory in the latter part of 2025.

Investor response to Musk's announcement was tepid, with Tesla poised to lose over $50 billion in market valuation if premarket losses persist. The electric vehicle (EV) giant's stock had already slumped by 16.4 per cent this month prior to this latest development. Analysts at TD Cowen remarked that Tesla's recent headlines have gone "from bad to worse," highlighting that Q4 revenue and profits failed to meet expectations.

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The news had a ripple effect, impacting other EV manufacturers such as Rivian Automotive Inc, Lucid Group, and Fisker, which saw declines ranging from 1.2 per cent to 2.4 per cent.

The broader EV industry has been contending with a demand slowdown for over a year, and Tesla's price cuts are expected to add pressure on startups and established automakers like Ford.

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Michael Hewson, Chief Market Analyst at CMC Markets, pointed out that Tesla faces challenges in boosting sales without compromising operating margins, especially given heightened competition in China and other markets.

Following Musk's remarks, nine brokerages downgraded Tesla's stock, while seven upgraded their ratings. Currently, the consensus is a "hold" rating with a median price target of $225, approximately 9 per cent higher than the stock's last closing price.

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Short sellers in Tesla have seen significant profits, totalling $3.45 billion this year, making it the most lucrative US short trade, according to data from analytics firm Ortex. Tesla's stock is currently trading at nearly 60 times its 12-month forward earnings estimates, presenting a premium valuation compared to other prominent stocks like Apple, Microsoft, and Nvidia.

Some analysts expressed concerns that Tesla's valuation might become difficult to justify if sales growth and profit margins continue to weaken, leading to comparisons with traditional auto companies. Bernstein analyst Toni Sacconaghi remarked that Tesla is increasingly resembling a conventional auto company.

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(With Reuters inputs)

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Published January 25th, 2024 at 18:43 IST

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