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Tesla's Steep Plunge Divides Analysts On Future Direction Of Stock

By Investing.com (Haris Anwar/Investing.com)Stock MarketsMay 25, 2022 09:35AM ET
www.investing.com/analysis/teslas-steep-plunge-divides-analysts-on-future-direction-of-stock-200624800
Tesla's Steep Plunge Divides Analysts On Future Direction Of Stock
By Investing.com (Haris Anwar/Investing.com)   |  May 25, 2022 09:35AM ET
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  • Tesla stock is down more than 40% this year amid a broad-based sell-off in high growth companies
  • Analysts warn the carmaker's difficulties in China have become impossible to ignore
  • Elon Musk's offer to buy Twitter is also weighing heavily on the stock

Shares of the world's largest electric carmaker, Tesla (NASDAQ:TSLA), have been dropping sharply for more than a month now, closing on Tuesday at $628.16, down almost 7% for the day.

TSLA Weekly TTM
TSLA Weekly TTM

The stock has been hurt by a combination of factors, including a grim macroeconomic outlook, a surge in COVID cases in China, and Elon Musk's pledge to buy Twitter (NYSE:TWTR) in a $44-billion deal.

Unlike last year's corrections, when Tesla managed to rebound quickly, this time seems different. Amid the broad-based sell-off in high-growth companies, losses on Tesla shares—the stock is down more than 47% so far year-to-date—are much steeper than other market heavyweights, such as Apple (NASDAQ:AAPL), which is down more than 20% this year.

Tesla has, so far, successfully navigated current global supply disruptions and soaring raw-material costs more effectively than the competition. It has produced 11 consecutive quarters of profits while consistently beating analysts' production estimates.

However, there are signs that the latest coronavirus outbreak in China, which extended already ongoing lockdowns that led to multiple production disruptions at its factory in Shanghai, will hurt production in the second quarter.

In a recent note, Morgan Stanley analyst Adam Jonas warned that the China supply constraints could potentially drive a "substantial" miss on deliveries in Q2. According to Bloomberg data, analysts' average estimate for Tesla's second-quarter deliveries stands at around 303,000 units, down 12% from the end of March.

Uncertainty Surrounding Twitter Deal

In addition to China's lockdowns and the worsening macroeconomic environment, Elon Musk's involvement in securing favorable terms on Twitter isn't helping either. The billionaire Tesla chief executive recently tweeted that the deal is "on hold" until he gets more information about the portion of the social media platform's users that are spam accounts.

This happened as both Tesla, which Musk relies on for funding the deal, and Twitter stocks tanked. Twitter's board, meanwhile, says it intends to enforce the agreement, which calls for him to pay $54.20 a share. This uncertainty weighs heavily on Tesla investors who worry that Musk will have to sell more of his holdings in the EV company to fund the deal. Adding additional pressure: the agreement also includes a $1 billion "reverse termination fee" that would be triggered if Musk walks away from the deal.

Given the myriad headwinds, Tesla's latest troubles have created a sharp divide among the analyst community regarding the company's stock.

Among 42 analysts polled by Investing.com, though 22 individuals surveyed gave TSLA a buy rating, an almost equal number rated it either a sell or consider it neutral.

TSLA Analyst Consensus
TSLA Analyst Consensus

Source: Investing.com

Their average 12-month price target of $973.84 indicates a 55.03% upside, but the price range is broad: from a low of $250 to a high of $1,620, a sign of just how uncertain analysts are of the stock's future trajectory.

In a note on Tuesday, Bernstein said it's concerned that Elon Musk's purchase of Twitter could cause Tesla shares to decline yet further. The note said:

"Perhaps the bigger - but less probable - financial risk is that Musk completes the deal, and TSLA's share price declines materially, triggering a margin call."

However, Tesla bulls have a solid reason to stay faithful. Tesla's shares have climbed more than 22,000% since it went public in 2010, providing investors an annual return of 58%. The S&P 500, on the other hand, has returned 373%, including dividends over the same period, averaging 15% a year.

While reiterating Tesla's price as overweight, Piper Sandler said in a note that the stock is still a "cornerstone holding."

"We are cutting our estimates and price target to reflect COVID-related weakness in China, as well as a higher WACC (weighted average cost of capital) assumption in our DCF model. However, we still regard TSLA as a cornerstone holding in any 'advanced mobility' portfolio."

Bottom Line

Any pullback in Tesla shares has proven to be a lucrative trade for dip buyers. But this time looks different, given the multitude of challenges the company faces, including production disruptions in China, a worsening macro environment, and the uncertainty surrounding Musk's Twitter deal.

***

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Tesla's Steep Plunge Divides Analysts On Future Direction Of Stock
 

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Tesla's Steep Plunge Divides Analysts On Future Direction Of Stock

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Comments (13)
Shirley Gohner
Shirley Gohner May 25, 2022 9:51PM ET
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+$30 today....story is old news and caters to Musk haters
Mojo Snake
Mojo Snake May 25, 2022 2:21PM ET
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not to mention Bill Gates using dark money and shorting the stock. hope he loses big I would invest in Tesla just to see him lose.
Robert Burris
Robert Burris May 25, 2022 2:21PM ET
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Please do, so I can watch you lose your money. People have been shorting Tesla stock as long as I can remember, but they're not the ones hurting Tesla, Musk is doing it all by his self. He needs to keep his focus with Tesla and his other adventures, and stay away from social media.
Santosh Oak
Santosh Oak May 25, 2022 2:21PM ET
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Sooner Gates loses better it is for the world.We will have less pandemics
Shirley Gohner
Shirley Gohner May 25, 2022 2:21PM ET
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Robert Burris    <--- probably drives a 2014 Ford Focus but gives advice...haha
Lane Scott
Lane Scott May 25, 2022 1:43PM ET
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Be greedy when people are fearful.
Sanjit Kumar Reang
Sanjit Kumar Reang May 25, 2022 1:41PM ET
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Hmm
Sanjit Kumar Reang
Sanjit Kumar Reang May 25, 2022 1:40PM ET
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very nice👍
Sanjit Kumar Reang
Sanjit Kumar Reang May 25, 2022 1:40PM ET
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Hii
Ayumastura PinkLady
Ayumastura PinkLady May 25, 2022 7:33AM ET
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inv cup & handle already still got bulls left? since dec21 i saw many people dont trust double top, inv cup handle, hns... but all hit tp. Look mercado libre, shopify
Xin Zhang
Xin Zhang May 25, 2022 4:08AM ET
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Lmao, if the so-called analysts are not stupid, they should know the only direction for Tesla is south.
Samson Ling Joon Lee
Samson Ling Joon Lee May 25, 2022 4:08AM ET
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just like China's economy and your income.
William Bailey
William Bailey May 25, 2022 3:44AM ET
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Under 100!!!
Sasha ZZ
Sasha ZZ May 25, 2022 3:44AM ET
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After split 10:1
Murali Krishna
Murali Krishna May 25, 2022 3:04AM ET
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Bottom line is there is no bottom for Tesla. That is the bottom line
 
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