Tesla: In a dramatic turn of events, Tesla (TSLA.O) witnessed a staggering plummet of nearly 11% on Thursday following CEO Elon Musk’s sobering revelation about the future trajectory of sales growth. Despite aggressive price cuts that have already taken a toll on margins, Musk cautioned that the pace of expansion would decelerate this year, casting a shadow over the prospects of the world’s most esteemed automaker.
Musk’s disclosure of a forthcoming shift in focus towards a more affordable, next-generation electric vehicle slated for production at Tesla’s Texas facility in the latter half of 2025 failed to assuage investor apprehensions. Instead, it triggered a domino effect, poised to wipe out a colossal $70 billion from Tesla’s market valuation if the downward spiral persists. This would translate to a staggering $200 billion loss in market capitalization for the month, painting a grim picture of the company’s immediate future.
Analysts at TD Cowen remarked, “The Tesla headlines have essentially gone from bad to worse,” underscoring the disappointment resonating among investors, particularly in light of fourth-quarter revenue and profit figures falling short of expectations.
The repercussions were not confined to Tesla alone, as fellow EV manufacturers like Rivian Automotive Inc (RIVN.O), Lucid Group (LCID.O), and Fisker (FSR.N) experienced a collective downturn, with shares plummeting between 4.7% and 8.8%. The broader EV industry, already grappling with a demand slowdown over the past year, now faces exacerbated challenges with Tesla’s aggressive pricing strategies.
Michael Hewson, chief market analyst at CMC Markets, highlighted the dilemma confronting Tesla, emphasizing that any concerted effort to bolster sales may come at the expense of further erosion in operating margins, exacerbated by intensifying competition, particularly from BYD in China.
The ramifications reverberated through the financial landscape, with nine brokerages downgrading Tesla’s stock while seven raised their ratings, leaving the company with an average “hold” rating and a median price target of $225, offering a modest 9% upside from its current valuation.
Meanwhile, Tesla’s detractors in the short-selling arena have capitalized on the turbulence, raking in a staggering $3.45 billion in profits year-to-date, catapulting it to the summit of the most lucrative U.S. short trades, as reported by data and analytics firm Ortex.
Despite boasting a stock trading at nearly 60 times its 12-month forward earnings estimates, signaling a premium valuation compared to its peers, including tech behemoths like Apple, Microsoft, and Nvidia, Tesla’s narrative is undergoing a seismic shift.
As Bernstein analyst Toni Sacconaghi aptly puts it, “Tesla is increasingly looking like a traditional auto company,” hinting at the evolving landscape and the challenges that lie ahead as the electric vehicle pioneer navigates through uncharted territory.
