Tesla’s Demand Troubles Spell a Terrible Start to the Year

Tesla’s Demand Troubles Spell a Terrible Start to the Year

(Bloomberg) — Shares of Tesla Inc. started the new year on an ominous note, bowing this week under renewed concerns about weakening demand for its electric cars and sending its market value briefly below Facebook parent Meta Platforms Inc. for the first time in over a year.

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Shares of the Elon Musk-led EV maker fell as much as 7.7% to $101.81 on Friday, but later erased losses to rise 1% as the broader market rose after economic data showed wage gains have slowed, a development that could help the Federal Reserve fight inflation. At the start of the session, Tesla’s market capitalization fell to about $321 billion, falling below the Meta’s roughly $334 billion.

Tesla shares have been in freefall for the past three months, as broader anxiety about the technology sale and Musk’s preoccupation with his acquisition of Twitter Inc. gave way to growing doubts about EV demand in the face of a recession. Two big events in the first week of the new year — weaker-than-expected fourth-quarter shipments and another round of price cuts for its vehicles in China — have intensified those fears.

It’s those risks that make investors cautious about the future of stocks, at least in the near term.

“With all the moving parts for Tesla — China lowering prices and increasing competition, there are currently too many unknowns to get a good sense of what an appropriate valuation is,” said Mark Stoeckle, chief executive of Adams Funds, which holds the stock. of Tesla. . “When you see a train wreck like this, it’s better to stand back and watch, not jump.”

Although high-cap technology companies, the main drivers of Wall Street’s previous bull market, struggled last year as they bore the brunt of rising interest rates and reduced investor appetite for risky investments , Tesla’s decline still stands out. The company finished 2022 at the bottom of the NYSE FANG+ Index, a gauge of 10 tech giants, including names like Meta, Apple Inc., Microsoft Corp. and Amazon.com Inc.

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Tesla’s valuation drop below Meta’s also highlights a lot in common between the two stocks. While they have very different businesses, both companies are facing general skepticism among investors about their futures, as their high-profile CEOs have made recent missteps.

Musk’s hold on retail investors, among whom Tesla enjoys an almost cult-like status and who have been net buyers of the stock even during its worst-ever performance, is also beginning to waver. The first signs of retail exhaustion at Tesla are emerging, analysts at Vanda Research wrote in a note Thursday.

“Retail investors have bought more Tesla shares over the past six months than they did overall in the previous 60 months, which means this group is definitely feeling the pinch of the recent months’ decline,” Marco said. Iachini and Giacomo Pierantoni from Vanda.

The sharp drop in value over the past year has pushed both Meta and Tesla out of the elite club of the US $1 trillion stock market — an exclusive grouping in which only six firms have been created. Just three Wall Street firms now have more than $1 trillion — Apple, Microsoft and Alphabet Inc.

Tesla shares ended 2022 with a record 65% decline, eclipsing the 33% decline in the Nasdaq 100. In the first trading session of 2023, shares of the Austin, Texas-based automaker fell more more than 12% after delivering fewer vehicles than expected last quarter despite offering big incentives in its biggest markets.

In contrast, Meta has fared better in recent months. Its shares are up more than 40% from November lows after the social media company took drastic cost-cutting measures that included cutting more than 11,000 jobs. Since the beginning of this year, it has gained more than 5%.

(Updates on stock movement in the second paragraph, add details on retail trading in the eighth and ninth.)

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