Shares in electric vehicle giant Tesla have taken a hammering this week, but is this part of a wider market sell-off or something more company-specific?
New investors in Elon Musk’s Tesla Motors (NASDAQ: TSLA) will probably have woken up this week and wondered why on earth the number beside their Tesla investment has turned from green to red.
For a stock that is up nearly 60% in 2020 and 115% in the past 12 months, this week will have come as a real shock to the system, with Tesla’s stock falling nearly 20% since Monday’s open. Much like President Trump blaming the current overall market drop on Tuesday’s Democratic debate, Elon Musk may have to come up with more than just “the coronavirus did it” to explain away Tesla’s funk.
If you want to read more about Tesla, you should check out these articles:
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- Germany Hits The Brakes On Tesla’s New Gigafactory
Tesla’s battery problem
It was revealed on Wednesday that the long-standing partnership between Tesla and battery-maker Panasonic (OTC: PCRFY). The pair share Tesla’s Buffalo Gigafactory, where Panasonic produces the solar cells for Tesla products such as SolarCity, but this will come to an end in September 2020.
Tesla has also had issues with its in-construction German Gigafactory, which was delayed due to environmental reasons, as well as the discovery of World War II ammunition on the site. The factory is to be used as a production plant for Tesla cars, as well as batteries, but these delays, coinciding with the growing coronavirus threat, could prove costly.
The Shanghai problem
Tesla’s Shanghai factory was a massive success when it began production in November last year and was on track to produce 3,000 cars per week until the coronavirus hit. Much like rivals NIO (NYSE: NIO) and tech giant’s Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), guidance for the year has been hit hard in the region, as the country all but ground to a halt.
Another problem lies in the fact that registrations of new Tesla vehicles in China fell nearly 50% from December. To fall so early in the year will make it very difficult for the company to hit its target of 500,000 units delivered in 2020. Meanwhile, U.S. rivals Ford (NYSE: F) and General Motors (NYSE: GM), though suffering too like most stocks, will not have production affected by a Chinese manufacturing slowdown.
Tesla’s hype machine
It would be naive to say that the coronavirus wasn’t the primary source of Tesla’s fall this week, and the company is still way off of its 2019 lows, but the hype train may have begun to leave the station.
It is part of a family we would call ‘meme stocks’, which means that it is overpriced, exciting, high-risk, is probably talked about a lot on Reddit and Twitter (NYSE: TWTR) by a, shall we say, ‘younger’ audience. Some other examples of ‘meme stocks’ are Virgin Galactic (NYSE: SPCE) and Beyond Meat (NASDAQ: BYND), which have taken the market by storm.
However, especially in Virgin’s case, the curtain is coming down this week, with a massive sell-off and its stock price falling more than 40% from its mid-February highs. This is because it showed in its earnings report this week that it is losing millions of dollars every quarter, and bringing in close to zero revenue. Flying to space is a very exciting prospect, and may well be worth a lot of money someday, but until then, investors should be wary of the hype.
Tesla is suffering the same fate, as investors begin to realize that the stock has been massively overpriced, considering it was close to $1,000 per share and has yet to report a profitable year.
Is it time to buy the dip?
In investing there is one very simple rule: never, ever try to outwit the market. It is impossible to say what is a good price to buy Tesla stock, as some investors might consider $500 severely overvalued, while another might say the opposite. Earlier this month, ARK analysts said they expected Tesla stock to hit a whopping $7000 per share by 2024, while others have set it as low as $600. It is arguably one of the most divisive stocks on the market.
However, it is also important to remember that Tesla is far from the worst-hit companies, with many oil and travel stocks such as Delta Airlines (NYSE: DAL) and Huazhu (NASDAQ: HTHT) feeling the sting of the virus. The recent Tesla selloff is largely based on fear and uncertainty, with investors selling first, asking questions later. It hurts now, but when the panic abates, it bodes well for the stock.
If you’re a long term investor, like us here at MyWallSt, weeks such as this shouldn’t be too worrying and could represent a good buying opportunity at a discount for stocks you are fond of. For me, Tesla is a good stock to have in a diversified portfolio: high-risk but with high potential. But I am a fan; if you don’t believe in Tesla, and are simply suffering from FOMO, sometimes it’s best to go with your gut.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Tesla. Read our full disclosure policy here.