Tesla's valuation plummets $80bn after Musk warns of slowing sales
What's the story
Tesla's stock took a nosedive of over 12% on Thursday, causing a staggering $80 billion loss in market value. This came after CEO Elon Musk cautioned that sales growth would likely slow down this year. The electric vehicle (EV) industry has been struggling with waning demand for over a year, and Tesla's price cuts have already taken a toll on profit margins. Musk revealed on Wednesday that growth would be "notably lower" as the company shifts its focus to affordability.
Challenges
Production challenges for new models and market competition
Musk admitted that increasing production of the new affordable model would be a tough task due to the use of advanced technologies. This announcement sparked investor worries about weak demand and growing competition from Chinese carmakers. Michael Hewson, chief market analyst at CMC Markets, stated, "The problem for Tesla is any significant attempt to boost sales from here on will probably need to be achieved at the cost of further falls in operating margin, as well as increased competition elsewhere."
Short-selling profit
Analysts' reactions and short sellers' profits
At least nine brokerages downgraded Tesla's stock, while seven upgraded their ratings. The company now holds a "hold" rating with a median price target of $225, which is 23% higher than Thursday's closing price of $182.63. According to data and analytics firm Ortex, Tesla short sellers have raked in $3.45 billion this year, making it the most lucrative short trade in the US. Bernstein analyst Toni Sacconaghi remarked, "Tesla is increasingly looking like a traditional auto company."