Why is tesla stock down
Introduction
Shares of Elon Musk’s company fell 11% to $ 109.10, which was the seventh fall in a row and the sharpest one-day drop since April last year. In general, the end of 2022 was not the best period for Tesla.
It’s important to note that stock prices can fluctuate based on various factors, and the reasons behind a particular stock’s movement can be attributed to a combination of market dynamics, investor sentiment, company-specific factors, macroeconomic conditions, and other influences.
With the announcement of a plan to temporarily halt production at a plant in China, concerns about demand risks have been revived. Next, we learned that Tesla is offering its American consumers a discount of $ 7500 for the supply of two of its models with the largest volume until the end of 2022, which together increases concerns about lower demand. Shareholders and just the owners of Tesla had a lot of questions.
Reminder…
Back in 2020, all the world’s analysts were betting on Tesla, predicting that it would become the leading electric vehicle company in a future dominated by electric vehicles. These predictions led to an impressive eight-fold stock rally in 2020, taking a place in the S&P 500 and at one point making it the fifth-most valuable stock in the world.
But what happened to the company at the end of 2022? And most importantly – what are the prospects of the company for the new 2023 year?
Well, there were a lot of rumors about it. Let’s recall the most frequent of them:
The Twitter Factor
Some investors have been concerned that Twitter is taking up a lot of Musk’s time, as he is now the owner and CEO of the social network.
His tenure as head of the platform has been marked by chaos as he implements — and often cancels — a slew of new policies. Musk recently said he would find a new CEO to replace him after a majority of Twitter users surveyed voted for his resignation. Experts say his volatile behavior has undermined confidence in Tesla, with the stock down 73% since November 2021.
In addition, the billionaire himself got rid of Tesla shares this year, selling his own Tesla shares for almost $ 4 billion to finance the deal to buy Twitter, which he bought for $ 44 billion.
In mid-December, he said he would not sell additional Tesla shares “for at least 18 to 24 months,” but financial reports show that he sold millions after making similar promises in April 2022.
Of course, these are just two of the reasons, but it also has a place to be.
Weakness of the world economy
“The weakness in stocks this year is mainly due to indicators indicating a decline in demand around the world,” said Craig Irwin, an analyst at Roth Capital Partners.
And of course, he is also right, because 2022 was recognized as one of the most unstable in the history of the world economy. Reinforced worries about military action in Europe and the danger of nuclear war have forced many investors to reconsider their approach to business.
Many of them think the U.S. economy could face a recession next year, hurting auto sales.
A month ago, Musk said in a phone call with Twitter Spaces that he predicted the economy would be in a “severe recession” in 2023.
“I think there will be some kind of macroeconomic drama that is higher than people currently think,” he said, according to Reuters, adding that economic conditions would “disproportionately affect” homes and cars.
However, that doesn’t excuse Tesla shares from falling 73% from a record high in November 2021. The stock fell 69% in 2022, more than double the Nasdaq’s drop. Among major automakers, however, Ford was down 46% and General Motors was down 43%, but no one had such a big drop.
Unfulfilled promises
There is another version, not without meaning. And it will surely appeal to many of you. Critics of Tesla said much of its sky-high valuation was based on promises Musk made regarding future products, many of which were made years after they were originally promised.
A prime example is the Cybertruck, a Tesla pickup truck first unveiled three years ago with promises that production would begin in 2021.
Production is now scheduled to begin next year and ramp up production in 2024, which is several years behind other offers of electric pickups from Ford and budding electric car maker Rivian, whose electric pickups are available for purchase today.
“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, which he never lives up to.”
Lack of chips
Another equally popular version is the shortage of chips (which results from problems with the global economy).
The global shortage of chips has dealt a blow to almost every major automaker. The problem forced General Motors to suspend assembly lines and cut Ford’s profits in half. In Tesla, this issue was also more acute than ever in 2022.
According to some reports, the company’s specialists still managed to avoid repeated closures of their plant’s thanks to an innovative solution.
According to CFO Zach Kirkhorn and founder Elon Musk, Tesla tried to circumvent this problem by rewriting the software of its electric vehicles to support alternative chips, which are not scarce.
The main reason for the shortage of semiconductors is a sharp increase in demand for diagnostic equipment during the pandemic: tomography, MRI equipment, ventilators, and others. Many manufacturers even had to abandon the launch of new ready-made samples and increase the production of obsolete models.
Consequences of Covid
The latest drop came after The Wall Street Journal reported that Tesla would continue a week-long shutdown of production at its Shanghai plant, facing a new onslaught of Covid cases among its Chinese employees.
Reuters reported that when Tesla’s Shanghai plant reopens in January, it will last just 17 days, in contrast to Tesla’s established practice. A new wave of Covid infections hit Shanghai this month.
Of course, it can be assumed that world military events and tense relations between the largest countries also do not affect the industry quite positively.
In fact, we think there are many real reasons for the fall of Tesla shares, and all of them, in symbiosis, played a cruel joke on the company. Although, Tesla is still the largest manufacturer of electric vehicles in the world (despite the fact that in some key markets this title is disputed by Volkswagen in Europe and BYD in China) and more competition comes from well-known automakers such as Ford and GM.
This year has been really special, from an unpleasant point of view.
In addition to the special problems that have affected the company in the past year, Tesla has to deal with the typical reasons for the fall of shares on a daily basis.
What affects Tesla’s stock price?
Experts do not have a unanimous opinion on what the future holds for Tesla in the long term. On the one hand, it is the leader of the electric car industry, not resting on its laurels. On the other hand, the increasing level of competition promises a difficult period.
Why is tesla stock down:
- The state of the American economy. The company managed to restore demand for electric vehicles after the pandemic. However, in any crisis situation, people try to save as much as possible.
- Development of the global automotive industry. If the global giants of the automotive industry also decide to make electric cars, Elon Musk will have to try hard to stay afloat. After all, it is possible that new items, for example, from BMW, will be more reliable and at the same time more affordable. And this will lead to a fall in Tesla shares.
- Novelties in the field of alternative energy. The weak point of all-electric cars from Tesla is the long recharge of the battery. Anyone who can create a device that speeds up the process will have an undoubted advantage. So the developers of Musk’s company have something to strive for.
- Consumer market. This factor is completely unpredictable. The views and preferences of buyers can change at the speed of sound. Of course, environmentalists will always be on the side of Tesla electric cars. But a lot of people are more used to fueling, which saves a lot of time, and this moment also risks affecting the value of securities.
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What to expect from Tesla in 2023?
Our Assessment – Despite a critically bad year (and especially the end of the year) for the company, however, analysts’ overall stance on Tesla remains bullish, with the highest share of purchases or equivalent ratings since early 2015.
“Despite the dynamics of the stock, Tesla’s innovation curve seems to be accelerating, in stark contrast to other big tech companies whose additional product updates seem stagnant at best,” Canaccord Genuity analyst George Gianarakas wrote in a note last week.
Without a doubt, Tesla is an impressive brand that has revolutionized the market of modern technologies.
Many believe that over the next 20 years, the company’s stock price will be able to overcome the milestone of $ 3,000, although now it seems unattainable. But at the same time, none of the analysts will give a full guarantee that Tesla will maintain supremacy in the market of electric cars.
Consulting with a financial advisor or conducting a detailed analysis can provide more accurate and specific insights into the performance of Tesla stock at any given time.
Well, the risk, in this case, is justified enough, do you think?)
