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Why Investors have Fallen Out Of Love With Tesla

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Why Investors have Fallen Out Of Love With Tesla

Tesla stock was one of the outsiders last year. The drop in the value of Elon Musk’s company came in waves, but it rarely stopped.

The company’s capitalization collapsed by a whopping 75% during this time — so what’s the reason?

First, it should be noted that Tesla shares were an outright bubble. Quotes were inflated back when money was cheap — the Fed’s rate was near zero, and the printing press was running.

They put literally everything into the price — that all cars would be electric for the foreseeable future; that Tesla would dominate the market, that profits would be exorbitant, and so on. And, of course, it was not without the so-called hype, which paved the way to the heights.

At the same time, it was clear to any sensible investor that the company which for a long time did not even show profit, simply could not be worth so much, especially in comparison with other representatives of the auto industry, such as GM, Ford and others.

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Competition — Chinese manufacturers increase turnovers

Also, even when there was competition in the market — many Chinese manufacturers and almost all major well-known brands began to make their cars with an electric motor — Tesla still continued to rise in price and was estimated as something exorbitant.

In 2022, after years of ultra-soft policies, the global financial market began to return to its traditional form, one where money has value and conditions for blowing bubbles are almost non-existent.

Market normalization has rolled over a lot of stocks that have lost nearly all of their value — mostly tech sector securities that do not and probably never will generate profits, while also, like Tesla, were valued by the market on some inflated expectations.

Tesla stock also began this 2023 year with a rout. On the first trading day they collapsed 11.6% at once, losing 14% at the moment. Technically, the reason was the publication of supply data. They rose 18% to 405,000 in the fourth quarter.

With those numbers, Tesla increased deliveries to 1.3 million cars in 2022, a 40% increase over 2021, but below the company’s forecast by 50%, and below Wall Street expectations. Also, delivery delays have only added to concerns about demand for Tesla cars.

At the same time, almost simultaneously, electric car manufacturers from China reported significant successes.

NIO, Li Auto and XPeng combined to increase sales by 34% in 2022. They delivered more than 376,000 electric vehicles, 34 percent more than in 2021.

The three manufacturers delivered 48,34 vehicles in December, a nearly 20% increase over the same period in 2021 and the highest monthly total on record. The previous monthly peak of 41,300 was in June 2022.

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Skepticism

It is worth noting that there has always been a lot of skepticism about Tesla. And a lot of people have tried to play down its stock.

It was almost the most popular paper for “opening shorts,” but they all tried to sell the inflating bubble, and as you know, the market can remain irrational as long as you have money.

Over the past five years, though, securities have risen nearly 500%, only to lose about 70% in 2022.

So the skeptics were right; after all, only not everyone made it to the triumph of the bears. According to Yahoo Finance/Bloomberg, downside gamers in 2022 could make about $17 billion on Tesla’s collapse.

Once again, though, let’s note that this is not a funeral for Elon Musk’s company; it is a process of market normalization.

All bubbles without exception are deflating, and the capitalization of even the strongest companies is undergoing a process of noticeable adjustment.

Needless to say, Apple and Microsoft — even they could not avoid this fate.

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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