Tesla CEO Elon Musk’s Warning Sends EV Stocks Tumbling
High Interest Rates Threaten Electric Vehicle Demand
Elon Musk’s recent cautionary remarks about high interest rates causing a decline in electric vehicle (EV) demand have resulted in a significant sell-off of EV stocks. This has raised concerns among analysts who question whether Tesla, the market leader in the EV sector, can sustain its exceptional growth that sets it apart from other automakers.
Tesla Stock Plunges, Wiping Out Billions in Market Value
Following Musk’s warning, Tesla’s stock plummeted by 9.3%, closing at $220.11. This steep decline erased more than $70 billion in the company’s market value. Other EV companies such as Rivian Automotive, Lucid Group, and Fisker also experienced drops of 4% to 5%, while traditional automakers like Ford saw a nearly 2% decrease in their stock value.
A Change in Tone for Tesla
Musk’s comments signified a shift in tone from his previous assertion that Tesla was “recession-resilient.” The disappointing news came after the EV manufacturer missed revenue estimates by the largest margin in over three years. Musk acknowledged that sustaining a 50% annual delivery growth rate was no longer feasible.
Concerns Surrounding Tesla’s Future Profitability
Analysts from Canaccord Genuity expressed disappointment, stating that Tesla’s recent earnings call lacked its usual excitement and suspense. The company is now expected to further reduce prices in the current quarter to meet its target of delivering 1.8 million vehicles this year. However, Tesla’s gross margin contracted to 17.9% from 25.1% a year earlier, leading Bernstein analyst Toni Sacconaghi to question the sustainability of Tesla’s profitability advantage in the competitive auto industry.
Analysts Cut Price Targets, Highlighting Uncertainty
As a result of these concerns, 15 analysts have reduced their price targets for Tesla, with the median view now at $260, according to LSEG data. Despite this setback, Tesla’s stock has still nearly doubled in 2023, reflecting investor optimism that the company will outperform its competitors and benefit from its self-driving initiatives in the long run.
Valuation Disparity Raises Eyebrows
Tesla’s stock currently trades at approximately 59 times its 12-month forward earnings estimates, compared to Ford’s 6.3 times and General Motors’ 4.2 times. Craig Irwin, senior research analyst at Roth Capital, remarked that the current market valuation seems to assume that all the EVs slated for launch by 2025 will fail. However, he emphasized that Tesla does not operate in isolation and will face competition.
Despite the recent setback, Tesla’s position in the EV market remains strong, and the company’s innovative efforts continue to drive its success. Only time will tell how Tesla and the broader EV industry navigate the challenges posed by high interest rates and evolving market dynamics.
