• Tesla’s shares fell more than 40% this year, amid a general wave of shares in high-growth companies
• Analysts warn against ignoring the difficulties of the automaker in China
• Elon Musk’s offer to buy Twitter is also very burdensome for the stock
For more than a month now, the stock of Tesla (NASDAQ :), the world’s largest electric vehicle maker, has been declining sharply.
On Tuesday, the stock closed at $ 628.16, down almost 7% daily.
The stock was hit by a combination of factors, including gloomy macroeconomic forecasts, an increase in corona cases in China and Elon Musk’s commitment to buy Twitter (NYSE 🙂 in a $ 44 deal.
Unlike last year’s repairs, in which Tesla was able to recover quickly, the current situation is apparently different. Against the background of the general wave of shares in growth companies, the decline in Tesla shares – which has fallen more than 47% since the beginning of the year – is much steeper than other giant companies, such as Apple (NASDAQ :), which fell more than 20% this year.
So far Tesla has managed, better than the competition, to cope with the disruptions in world supply and the surge in raw material costs. It had 11 in a row, with a consistent diversion of analysts’ estimates in terms of production.
But there are signs that the recent eruption of the corona in China, which has led to the extension of existing closures, which disrupted production processes at the company’s plant in Shanghai, will hurt production in the second quarter.
In a recently released report, Adam Jones, an analyst at Morgan Stanley, warned that supply problems in China could lead to a “significant” miss of the vehicle supply forecast in the second quarter. According to Bloomberg data, Tesla’s second-quarter analysts’ estimate of vehicle supplies is about 303,000 units, down 12% from the end of March.
| Uncertainty regarding the Twitter deal
In addition to the closures in China and the tightening of macroeconomic conditions, Elon Musk’s involvement in improving the terms of the agreement to buy Twitter does not help. Tesla’s billionaire CEO recently wrote on Twitter that the deal was “on hold” until he received more information on the rate of spam accounts from users of the social media platform.
This happened at a time when both Tesla’s stock, on which Musk relies on financing the deal, and Twitter shares had also fallen. The Twitter board, for its part, said it intends to enforce the agreement, under which Musk must pay $ 54.20 per share. The uncertainty is very heavy on Tesla investors, who fear the possibility that Musk will be forced to sell another part of his holdings in the electric car company, in order to finance the deal. And there is additional pressure: the agreement also includes a “cancellation fee” of $ 1 billion, in case Musk decides to exit the deal.
Given the plethora of factors that give it a windfall, Tesla’s recent difficulties have created a clear controversy in the analyst community regarding the stock.
Of the 42 analysts who participated in the Investing.com survey, 22 of those surveyed gave the TSLA stock a buy rating, but almost the same number gave it a sell or neutral rating.
Graph Source: Investing.com
Their average 12-month target price, $ 973.84, gives the stock an upside of 55.03%, but has a wide price range: a low of $ 250 to a high of $ 1,620, as an expression of analysts’ uncertainty about the stock’s future.
A report released Tuesday by Bernstein expressed concern about the possibility of a further drop in Tesla shares due to the acquisition of Twitter by Elon Musk. The report reads:
“A financial risk that may be greater – but less likely – is that Musk will complete the deal, followed by a significant drop in Tesla’s share price, a drop that will trigger a collateral requirement.”
However, Tesla’s bulls have good reason to keep the faith. Tesla’s stock has risen more than 22,000% since its IPO in 2010, giving investors an annual return of 58%. The index, on the other hand, gave a return of 373%, with dividends for that period, averaging 15% per year.
A report by Piper Sandler, who went on to give the Tesla stock an overweight rating, said the stock was still a “substantial holding.”
“We are lowering estimates and target price to reflect the weakness in China due to the corona, in addition to the increase in WACC (weighted average cost of capital) in our cash flow capitalization model. However, we still consider Tesla a significant holding in any portfolio that invests in advanced mobility. ‘”.
| The bottom line
Any pullback in Tesla stock turned out to be a worthwhile bet for buyers in the declines. But this time, the situation is probably different, given the plethora of challenges the company faces, including manufacturing problems in China, deterioration in the macroeconomic situation and uncertainty about Musk’s deal to buy Twitter.
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