Tesla shares are down 70% for the year

New York
CNN
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Tesla stock is ending its turbulent year with more turmoil: It was up nearly 6% Thursday, but is still down more than 10% since last week. And the new cut in its price target from Morgan Stanley doesn’t help.

Year-to-date, the stock is down 70%. Morgan Stanley analysts said Thursday that the company’s share price decline represented a buying opportunity, but cut their price target from $330 per share to $250. Tesla shares are trading at $122, with the stock up about 8% on Thursday.

Morgan Stanley still believes the company is somewhat undervalued as a result of its recent big sell-off, citing its start in electric vehicle competition, and Potential tax benefits As a result of the Inflation Reduction Act that was passed earlier this year.

But the losses further affected the fortunes of one of the world’s richest people. 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 the richest person in the world Two weeks ago to Bernard ArnaultChairman of the Board of Directors of the French luxury goods giant LVMH

(LVMHF).

A common misconception has emerged about Elon Musk and Tesla: the billionaire’s love affair with Twitter is the main reason why Tesla shares have lost so much this year.

Even as Musk has indicated that he may give up his title of CEO at Twitter, investors have grown concerned that Tesla’s sales and earnings outlook is heading for the worse. Sign of weak demand: Tesla announces a rare sale. The company has offered two discounts to buyers who receive a vehicle before the end of the year, initially offering a $3,750 discount earlier this month. Then Tesla doubled that discount to $7,500 last Thursday.

said Dan Ives, a technology analyst at Wedbush Securities and a Tesla bull who cut his price target for the stock last Friday from $250 to $175. “The price cuts enacted by Tesla were the straw that broke the camel’s back on the stock.”

Another reason for Tesla’s stock decline: The US economy could slip into recession next year, hurting auto sales. Musk said in a call via Twitter Spaces two weeks ago that he expects the economy will be in a “serious recession” in 2023.

“I think there will be some higher overall drama than people currently think,” he said, according to Reuters, adding that homes and cars would be disproportionately affected by economic conditions.

Part of the problem with Tesla’s share price is that pundits are questioning whether it’s worth the trillion-dollar valuation it had at the start of the year. At its peak, Tesla was worth more than the 12 automakers on the planet combined, despite owning only a fraction of the sales of any of them. Today it is worth $399 billion.

“It’s got ahead of itself in the near term,” said Gene Munster of Loup Ventures, a Tesla fan. “I still think this could be a much bigger company. I think he’s going to see those kinds of numbers again. But it could take a long time to get there.”

Tesla’s growth prospects—a target of 50% annual sales growth—helped drive that valuation. It admitted in October that it would miss its sales target this year.

The stock’s climb to dizzying heights — up 743% in 2020 alone — has been fueled by Musk’s reputation as a genius who would disrupt the massive global auto industry.

“Tesla was seen as a disruptive technology company, not a car manufacturer, and a good chunk of that premium is tied to Musk,” Ives said.

Tesla’s critics said much of its high valuation was based on promises Musk made about future products, many of which came years after he originally promised.

A good example of this is the Cybertruck, Tesla’s pickup truck, which was first unveiled three years ago with promises that production would begin in 2021.

Now it’s slated to begin production next year, with production ramping up in 2024, which puts it behind other electric pickup offerings from Ford and electric vehicle innovator Rivian, both of which have electric pickups available for purchase today. It can also track GM’s 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 delivers.”

Johnson said Tesla shares will see an even steeper decline, once he starts pricing them like other automakers rather than delivering on their promises. For Tesla to meet its growth goals, he said, 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. He said its factory in China had to cut back production due to weak sales in the market in the face of Covid restrictions.

“Demand has collapsed in the United States,” he said. “Two months ago, the wait time was two or three months. Now you can have one right away. They’re going to build more cars than they’re selling for the third quarter in a row. It’s the definition of overcapacity.”

Tesla remains the largest maker of electric vehicles worldwide, although that title is being challenged in some key markets, by Volkswagen in Europe and BYD in China. And more competition comes from well-known automakers like Ford and GM.

That’s not to say Twitter played no role in Tesla’s stock price crash this year: Tesla shares have lost more than 65% of their value since Musk’s interest in Twitter was first revealed in April, with a drop of nearly 50% since he closed the deal. in late October.

Investors were disappointed that Musk appeared to be paying off much of his $44 billion Twitter purchase by selling Tesla stock. Musk, Tesla’s largest shareholder, has sold $23 billion worth of Tesla stock since his interest in Twitter became public in April.

On a Twitter Spaces call last week, Musk promised he was done selling Tesla stock

(TSLA) Until at least 2024, if not later. But he fell short of his earlier promise in April that he had finished selling Tesla

(TSLA) And $14.4 billion of that stock has been sold since then.

“It was Pinocchio’s position for Musk to say he’s done selling shares. Investors want to see him go down the road and not just talk the talk,” Ives said.