Tesla (TSLA.O) saw a significant decline of over 8% on Thursday following CEO Elon Musk's caution that sales growth would decelerate this year, despite prior price reductions that have already impacted margins and raised investor apprehensions at the premier automaker globally.
Musk's announcement that growth would be "notably lower" as Tesla shifts focus towards a more affordable next-generation electric vehicle set to be manufactured at its Texas facility in the latter half of 2025 didn't resonate well with investors. As a result, Tesla stands to shed over $50 billion in market capitalization if premarket losses persist. The company's stock had already dipped by 16.4% this month as of the last trading day.
"The Tesla headlines have essentially worsened," remarked TD Cowen analysts, highlighting that fourth-quarter revenue and profits fell short of expectations.
The downward trend extended to other electric vehicle manufacturers, with Rivian Automotive Inc (RIVN.O), Lucid Group (LCID.O), and Fisker (FSR.N) all experiencing declines ranging from 1.2% to 2.4%.
The electric vehicle sector has been contending with a demand slowdown for over a year, and Tesla's price adjustments are expected to exacerbate the strain on startups and established automakers such as Ford (F.N).
"The challenge for Tesla is that any substantial effort to bolster sales from this point forward is likely to come at the expense of further erosion in operating margins, given the competition with BYD in China, as well as intensified competition elsewhere," observed Michael Hewson, chief market analyst at CMC Markets.
Nine brokerages have downgraded Tesla's stock, while seven have upgraded their ratings. The consensus among analysts places a "hold" rating on the company, with a median price target of $225, approximately 9% higher than its last closing price.
Tesla short sellers have reaped $3.45 billion in profits so far this year, making it the most lucrative U.S. short trade, as per data and analytics firm Ortex.
LSEG data shows that the company's stock trades at nearly 60 times its 12-month forward earnings estimates, reflecting a premium valuation compared to other prominent tech stocks like Apple, Microsoft, and Nvidia.
Some analysts argue that Tesla's valuation could become increasingly challenging to justify if its sales growth and margins continue to weaken.
"Tesla is beginning to resemble a conventional auto company more and more," noted Bernstein analyst Toni Sacconaghi.
