Tesla shares are down 70% this year as Morgan Stanley lowers price target – CNN

Tesla shares are down 70% this year as Morgan Stanley lowers price target - CNN


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CNN

Tesla’s stock ends its tumultuous year with even more turbulence: It’s up nearly 6% Thursday, but still down more than 10% since last week. And another cut in Morgan Stanley’s price target isn’t helping.

Year-to-date, the stock is down about 70%. Analysts at Morgan Stanley said Thursday that the company’s falling share price presents a buying opportunity, but they lowered the price target from $330 per share to $250. Tesla shares are trading for $122, with the price up about 8% on Thursday.

Morgan Stanley still believes the company is somewhat undervalued as a result of the big recent sell-off, citing its competitive edge in electric cars, and possible tax benefits as a result of the Inflation Reduction Act passed earlier this year.

However, the losses have put a further dent in the fortunes of one of the world’s richest people. According to the Bloomberg Billionaires Index, CEO Elon Musk is now worth $132 billion, less than half of what he was worth at the beginning of the year. He lost the title of the world’s richest person two weeks ago to Bernard Arnaultthe chairman of the French luxury goods giant LVMH

(LVMHF)
.

A popular misconception has sprung up about Elon Musk and Tesla: The mega-billionaire’s love affair with Twitter is the main reason why Tesla shares have lost so much value this year.

Even as Musk indicated on Twitter that he would be relinquishing his CEO title, investors began to worry that Tesla’s sales and earnings outlook was worsening. A sign of declining demand: Tesla has announced a rare sale. The company offered two rebates for buyers who take delivery of a vehicle before the end of the year, initially discounting $3,750 earlier this month. Tesla doubled that discount last Thursday to $7,500.

“Tesla is clearly beginning to see demand cracks in China and in the US at a time when EV competition is increasing across the board,” said Dan Ives, technical analyst at Wedbush Securities and a Tesla bull who lowered his price target for the stock last year . Friday from $250 to $175. “The price cuts Tesla made were the straw that broke the camel’s back.”

Another reason why Tesla’s stock is falling: The U.S. economy could slide into recession next year, hurting car sales. Musk said in a Twitter Spaces call two weeks ago that he expects the economy to be in a “severe recession” by 2023.

“I think there will be a macro drama that is bigger than people currently think,” he said, according to Reuters, adding that homes and cars will be “disproportionately affected” by the economic conditions.

Part of the problem with Tesla’s stock price is that critics are wondering if it was ever worth the trillion-dollar valuation it had at the start of the year. At its peak, Tesla was worth more than the world’s 12 largest automakers combined, despite having a fraction of the sales of any of them. Today it is worth $399 billion.

“It got ahead of things in the short term,” says Gene Munster of Loup Ventures, another Tesla fan. “I still believe this can become a much bigger company. I think it will see those kinds of numbers again. But it can take a very long time to get there.”

Tesla’s growth outlook – a target of 50% sales growth per year – contributed to that valuation. It admitted in October that it will miss that sales target for this year.

The stock’s climb to dizzying heights — up 743% in 2020 alone — was driven by Musk’s reputation as a genius who would disrupt the massive global auto industry.

“Tesla was seen as a disruptive tech company, not an automaker, and a big chunk of that premium is related to Musk,” Ives said.

Tesla’s critics said much of its skyrocketing rating was based on promises Musk made about future products, many years after they were originally promised.

A good example is the Cybertruck, Tesla’s pickup truck, which was first unveiled three years ago with a promise of production starting in 2021.

Now production is slated to begin next year, with production ramping up in 2024, putting it years behind other electric pickup offerings from Ford and upstart EV maker Rivian, both of which today have electric pickups that are for sale today. It could also follow General Motors’ planned range of electric pickups.

“Elon Musk has a pathological problem with the truth,” said Gordon Johnson, one of Tesla’s biggest critics among analysts. “When people say he’s a genius and innovator, it’s based on all his promises he never keeps.”

Johnson said Tesla stock will take a much steeper fall once it starts to be priced like other automakers rather than on its promises. He said Tesla has to build new factories almost every year to meet its growth targets, but new factories in Germany and Texas that opened in the spring are still not running at full capacity. And he said his factory in China has had to scale back production due to weak market sales in the face of Covid restrictions.

“Demand in the US has collapsed,” he said. “Two months ago your waiting time was two or three months. Now you can get one right away. They are going to build more cars than they sell for the third consecutive quarter. It is the definition of overcapacity.”

Tesla is still by far the largest EV maker in the world, although that title is being challenged in some key markets, by Volkswagen in Europe and BYD in China. And there will be more competition from established automakers such as Ford and GM.

That’s not to say Twitter hasn’t played a role in Tesla’s share price fall this year: Tesla shares have lost more than 65% of their value since Musk’s interest in Twitter was first revealed in April, with shares falling by almost 50% since he closed the deal. the end of October.

Investors are disappointed that Musk appears to be paying for so much of his $44 billion purchase of Twitter by selling Tesla stock. Musk, Tesla’s largest shareholder, has sold $23 billion worth of Tesla stock since his stake in Twitter went public in April.

Speaking to Twitter Spaces last week, Musk promised he was done selling shares of Tesla

(TSLA)
stock until at least 2024, if not beyond. But he failed to deliver on an earlier promise in April that he was done selling Tesla

(TSLA)
shares, and has since sold $14.4 billion of those shares.

“It has been a Pinocchio situation for Musk saying he is done selling stock. Investors want to see him walk and not just talk,” Ives said.

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