Bloomberg- Tesla Inc. is struggling Tuesday due to the fact that the electric-vehicle maker's production woes in China refuse to go away, leading another analyst to slash their 12 month price target on the once high-flying stock.
With more than 13,000 units of production per week and higher than average margins, a production loss at Shanghai is bound to have a significant impact on margins and earnings, said Daiwa analyst Jairam Nathan, who cut his price target to $800 from $1,150.
Until recently, Tesla was considered the ultimate growth stock, rising 50% last year and closing at $1,145 on April 4, when CEO Elon Musk announced his 9.2% stake in Twitter Inc. Since then, Musk has been involved in a highly public attempt to buy the social media platform. Since touching a record high in November, Tesla's stock has fallen to around $635 and wiping out almost half of its market capitalization.
Since Musk revealed his Twitter stake, Tesla shares have plunged 43%, compared with a 14% decline in the S&P 500 Index and a 28% drop in the S&P 500 consumer discretionary sector. It is the eighth worst performing stock in the S&P 500 over that time and the fourth biggest drag in terms of index points.
Since April 4, Tesla has underperformed most of the market's other major tech growth stocks, including Facebook parent Meta Platforms Inc. and Apple parent Alphabet Inc. Streaming service Netflix Inc. is the only FAANG name that has a worse performance than Tesla since the news broke of Musk's Twitter position.
All of this helps explain why Musk captivated markets when he sold $8.5 billion of Tesla stock to pay for the buyout. With the billionaire reluctance to go ahead with the purchase, Musk and Tesla are getting the wrong kind of publicity at a pivotal time for investors. The deal spread, or the difference between Musk's offer price and Twitter's share price, is $18, the widest since the takeover plan was announced in April.
Tesla's key Shanghai factory has had a long-running Covid 19 lockdown that has resulted in disruptions in the city, despite the distractions from Twitter. The company was dropped from the ESG version of the S&P 500 earlier this month, a move that could lead to forced selling by funds benchmarked to that gauge. The company has dealt with supply shortages and surging raw material costs that other automakers face.
Read More: Tesla Weighs on S&P 500 as Twitter Waffling, China Hit Stocks:
The Federal Reserve raised interest rates to tame inflation, and the broader market environment has turned against highly valued growth companies. Goldman Sachs said on Monday that hedge funds are slowly rotating away from Apple, Amazon and Tesla and that they continue to reduce exposure to growth stocks.
Seth Goldstein, equity strategist at Morningstar Research Services, said that Tesla is a high growth company, so the majority of its valuation is driven by future growth expectations. Even small changes in future growth assumptions can have a big impact on the stock's valuation. The Thrill of Better Office Wi-Fi is None
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