Tesla stock was down 52% from the all-time high touched in mid-December.
Tesla stock was down 52% from the all-time high touched in mid-December.
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By Esha Dey | Bloomberg
Elon Musk’s fans are known for their commitment to Tesla Inc., but in the current rout of the stock even long-term believers are backing away.
The retreat from Musk’s electric vehicle company, which has been the biggest decliner in the S&P 500 Index this year, has been so extreme that on Monday night President Donald Trump intervened, saying he would buy a new Tesla to support Musk.
On Tuesday, Trump chose a red Model S from the Teslas that were delivered to him at the White House. The stock rose 6% by 10:45 a.m. in New York on Wednesday, putting it on track to extend gains as it attempts to stage a rebound following Monday’s 15% rout. But despite the presidential purchase — and the apparent opportunity to buy the dip — Musk’s faithful are nervous to wade in and scoop up shares on the cheap, fearing that the bloodbath may be far from over.
The stock was down 52% from the all-time high touched in mid-December as of Tuesday’s close and it has given back all of the gains it experienced after the election, back when traders were betting that Tesla would benefit from Musk’s close ties to the new president.
“This stock is trading on feelings right now and the downside pressure is winning; there is more room for the stock to fall in the next 30-60 days,” said Brian Mulberry, client portfolio manager at Zacks Investment Management Inc., which oversees about $21 billion in assets. The shares “can easily go down to $200 or even below in the short term.”
Zacks held more than 270,000 Tesla shares as of Dec. 31. and Mulberry said he could see the stock getting back above $400 next year. But he is staying on the sidelines for now.
He isn’t alone. As the price fell under $230 this week, down from over $400 less than two months ago, Wall Street analysts — even some of those with a buy-recommendation — have been taking a more cautious stance. Just over the past week, at least four analysts lowered their price targets on Tesla, while two other long-term bullish analysts warned about poor sales and “negative” sentiment.
One of the few sources of support have been the retail traders who are among Musk’s most reliable fans. These small investors have, on net, purchased $2.8 billion of Tesla stock since last Tuesday, according to Emma Wu, a global quantitative and derivatives strategist at JPMorgan Chase & Co.
But even here, there have been signs of the pain. The author of one of the top posts on Tuesday on the Reddit forum for Tesla traders wrote: “I keep holding but at this point I’m beginning to doubt my decision.”
The problem confronting investors is that there are few events on the horizon that could improve sentiment
Updates on Tesla’s fully self-driving car or its robotaxi, are not expected any time soon. And Musk’s preoccupation with the Department of Government Efficiency has given rise to concerns that he is too distracted to run his car company.
The current Republican administration’s strong opposition to electric vehicles spells trouble for demand in US. And Tesla sales are also falling globally, with dire reports coming from China, Europe and Australia. In many places Musk’s growing involvement with global politics is seen as hurting the company’s brand.
The drops have been so drastic that several analysts have lowered their first-quarter delivery estimates, with UBS’s Joseph Spak on Monday warning that current profit expectations are looking too high. Evercore ISI analyst Chris McNally cut his full-year estimate for vehicle deliveries to 1.75 million, from 1.88 million, in a report published Wednesday.
While these concerns have been weighing on Tesla shares since the beginning of this year, the stock really lost its bearing as the broader appetite for risk soured over the past couple weeks amid growing uncertainties about Donald Trump’s trade policies and fears of an economic slowdown.
“Tesla is now a proxy for the Trump trade and unless the market is willing to reward Trump and Musk for their efforts this stock will keep going down,” said Adam Sarhan, founder of 50 Park Investments. “There is no floor in this stock right now.”
The tables have turned rapidly on Tesla. After Trump was elected in November, Tesla shares quickly became the largest beneficiaries of that victory in the equity market. The stock jumped more than 90% in just over a month, despite the fact that the outlook for the company’s business continued to worsen.
Even after the retreat of the Trump wave, Tesla is still trading at a significantly higher multiple than other mega-cap peers. The shares were trading at 75 times forward earnings as of Monday’s close, compared to an average of 25 times for the so-called Magnificent Seven stocks. The average S&P 500 member trades at around 20 times earnings.
The steep valuation and Tesla’s popularity among risk and momentum traders make the stock vulnerable to drastic selloff, but they also mean that any recovery, when it comes, can be swift and massive.
For now though, even the bulls are finding little to hold on to.
In the options markets, most of the flow is coming from investors looking for investors looking to protect against further losses, with puts trading at the highest level relative to bullish calls since the volatility shock in early August. One-month implied volatility on Monday reached the highest level since the end of 2022, when shares had slumped to near $100. Both skew and volatility bounced back a bit on Tuesday along with the stock.
“Tesla is in a freefall right now, which makes buying dips difficult for those with short-term time horizons,” said Mark Newton, head of technical strategy at Fundstrat, and a long-term bull on the stock. “But those who try to be quick in selling here to buy back in a few days are playing a dangerous game.”
–With assistance from David Marino, Subrat Patnaik, Craig Trudell and Philip Sanders.
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