The current steep sell-off of Tesla (NASDAQ 🙂 stock is not surprising. Those who follow the electric car maker have often experienced the boom-and-bust cycles over the past two years.
In the latest downward move, Tesla has lost nearly a quarter of its value since reaching a record high on August 31. Even with the correction of that magnitude, the stock is still up 356% for the year, making it the biggest asset among the big-capitalization tech companies.
But the reality of investing in Tesla stock is that it can fall as fast as it can rise. That trend is quite evident in the current downturn as it underperforms other tech names.
Behind this tremendous momentum lies the company's grandiose goals that help increase its stock but are rarely met. The latest example of this pattern is the recently concluded "Battery Day," which fell short of investors' expectations, causing stock value to drop about 11% on Tuesday.
Founder and CEO Elon Musk told investors at the highly anticipated event near the company's Fremont, California assembly plant that he aims to produce 20 million vehicles a year, or nearly twice as many as Volkswagen (DE 🙂 AG ( OTC 🙂 Sold last year.
With this ambitious production figure, which came without a precise timeline or budget, Musk also told the public that he plans to build a $ 25,000 electric car and cut battery costs in half over the next three years.
According to a report in the Wall Street Journal:
"It's the kind of shoot-for-the-moon goal that has previously excited investors to make Tesla the world's most valuable auto company, despite selling just 367,500 vehicles last year."
“Mr. Musk has a long history of making grandiose claims, some of which have been conveniently forgotten, including robotic vehicle promises and missed production goals. "
Lack of New Catalysts
The negative surprise of Battery Day comes at a time when investors are shunning high-flying growth stocks following the post-pandemic rally that drove the technology. heavy to new highs and heightened fear of a bubble that could burst.
"With battery day in the rearview mirror, we think there is a lack of emerging catalytic converters and are cautious about demand given the recession," wrote Robert W. Baird's Ben Kallo in a note quoted by Bloomberg, in which he calls Tesla a bearish. "Fresh harvest."
Before the latest blow, Musk gained credibility after opening a giga factory in China in record time and making four consecutive profits after several years of struggle while working to supply the Model 3.
But some analysts believe this performance has already been factored into stock valuations. JP Morgan, who is an & # 39; underweight & # 39; rating on the stock with a price target of $ 65 per share, said in a note that Battery Day, like other Tesla investor days, was not without its share of lofty goals and grandiose projections.
"Overall, we felt that 'Battery Day' was effective in bolstering confidence in Tesla & # 39; s ability to stay ahead in terms of battery cost and performance, although we did the still consider stocks to be significantly overvalued relative to fundamentals. "
Bottom Line
These warnings remind us that Tesla & # 39; s journey to the current level has not been one straight line higher. Since 2018, there have been two sell-offs, each letting investors down as the stock fell roughly 50% each time. Investors should brace themselves for a similar move if the current downward trend continues.
