- Tesla stock has lost more than 40% this year, amid widespread selling off of high-growth companies.
- Analysts warn that the automaker’s struggles in China have become impossible to ignore.
- Elon Musk’s takeover bid for Twitter is also weighing on the stock.
Shares of the world’s largest electric car maker, Tesla (NASDAQ:), have fallen sharply for more than a month, closing Tuesday at $628.16, down nearly 7% on the day.
The stock suffered from a combination of factors including a gloomy macro outlook, a rise in COVID cases in China and Elon Musk’s promise to buy Twitter (NYSE:) for $44 billion.
Unlike last year’s corrections, where Tesla managed to bounce back quickly, this time looks different. Amid widespread liquidation of high-growth companies, the losses suffered by Tesla shares – the stock has lost more than 47% since the start of the year – are much larger than those of other market heavyweights. , like Apple (NASDAQ:), which has lost more than 20% this year.
So far, Tesla has weathered the current global supply disruptions and soaring raw material costs more effectively than the competition. She made 11 while consistently beating analysts’ production estimates.
However, there are signs that the latest coronavirus outbreak in China, which has extended already ongoing containment measures and led to multiple production disruptions at its Shanghai plant, will hurt production in the second quarter.
In a recent note, Morgan Stanley analyst Adam Jonas warned that supply constraints in China could potentially lead to a “substantial” shortfall in second-quarter shipments. According to data from Bloomberg, the average analyst estimate for Tesla’s second-quarter shipments is around 303,000 units, down 12% from the end of March.
Uncertainty surrounding the deal with Twitter
Apart from the lockdowns in China and the deteriorating macroeconomic environment, Elon Musk’s involvement in securing favorable terms on Twitter is also not helping. The billionaire Tesla executive recently said on Twitter that the deal was “on hold” until he got more information about the proportion of the social media platform’s users who are spam accounts.
It came as shares of Tesla, which Musk relies on to fund the deal, and Twitter fell. Twitter’s board, meanwhile, says it intends to enforce the deal, which calls for the payment of $54.20 per share. That uncertainty is weighing heavily on Tesla investors, who fear Mr. Musk may have to sell more of his stake in the electric vehicle company to fund the deal. To add further pressure, the deal also includes a $1 billion “reverse termination fee” that would be triggered if Musk pulls out of the deal.
Given the myriad headwinds, Tesla’s latest issues have created a significant divide within the analyst community regarding the company’s stock.
Of the 42 analysts surveyed by Investing.com, while 22 people rated TSLA buy, an almost equal number rated it sell or consider it neutral.
Their 12-month average price target of $973.84 indicates a 55.03% upside, but the price range is wide: from $250 at the low to $1,620 at the high, which shows how analysts are uncertain of the stock’s future trajectory.
In a note released on Tuesday, Bernstein said he feared Elon Musk’s Twitter purchase could lead to further declines in Tesla shares. The note says:
“Perhaps the biggest – but least likely – financial risk is that Musk completes the deal, and TSLA stock price drops significantly, triggering a margin call.”
However, Tesla supporters have a good reason to remain loyal. Tesla shares have climbed more than 22,000% since going public in 2010, providing investors with a 58% annual return. The index, meanwhile, recorded a return of 373%, including dividends, over the same period, an average of 15% per year.
While reiterating Tesla’s stock overweight, Piper Sandler said in a note that the stock remains a “basic holding.”
“We are reducing our estimates and price target to reflect COVID-related weakness in China, as well as a higher WACC (weighted average cost of capital) assumption in our DCF model. However, we still view TSLA as a value. key in any “advanced mobility” portfolio.”
Conclusion: Should we flee Tesla stock?
Any pullback in Tesla stock has proven to be a lucrative trade for buyers of falling stocks. But this time around looks different, given the myriad of challenges facing the company, including production disruptions in China, a deteriorating macroeconomic environment and uncertainty surrounding Musk’s Twitter deal.
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