Is the Tesla bubble about to burst?

Recently, Tesla’s stock price has fallen one after another.

Is the Tesla bubble about to burst?

On March 5th, Eastern Time, Tesla’s stock price dropped by 13.19% in intraday trading, and closed with a drop of 3.78%. The closing price of the day was 597.95 US dollars per share, which was the lowest since 2021.

So far, Tesla’s stock price has fallen from its peak of $900 per share on January 26 to less than $600 per share, a drop of more than 30%. In more than a month, Tesla’s market value has evaporated by 270 billion U.S. dollars, and the latest market value is about 573.9 billion U.S. dollars.

Some analysts believe that factors such as the current shortage of chips and the increasingly fierce competition in the electric vehicle field have caused Tesla’s stock price to fall.

The stock price has shrunk “2 Ford + 2 GM”

Since Tesla CEO Musk disclosed on February 8 that he had invested $1.5 billion in the purchase of Bitcoin, Tesla’s stock price began to show signs of decline, and it has continued to this day.

The continued decline in stock prices caused Tesla’s market value to shrink by more than $300 billion. This value is more than twice the current market value of Ford (F, market value: US$48.819 billion) and General Motors (GM, market value: US$77.449 billion), and is more than twice the current market value of Toyota Motor (TM), the world’s second-highest automaker by market value. The market value of 2076.28 billion U.S. dollars) is even higher than 100 billion U.S. dollars.

Picture source: Photo by reporter Liu Ling (data map)
In the view of Cao He, president of Quanlian Auto Dealer Investment Management (Beijing) Co., Ltd., the decline in Tesla’s share price means that it has entered a “squeezing bubble” stage. “It can be said that (the stock price decline) is a sequelae of Tesla’s (stock price) continuous skyrocketing last year. The stock price was too high before and now it has entered a period of decline or deep decline, which is normal.” Cao He is accepting “Daily Economic News” The reporter said in an interview.

In 2020, Tesla’s share price skyrocketed, with an increase of more than 700% during the year, and Musk, who holds more than 20% of the shares, also became the world’s richest man. Public data shows that from March 19, 2020 to January 26, 2021, Tesla’s stock price soared by more than 1,100%.

Jiang Han, a senior researcher at Pangu Think Tank, also said: “For a stock like Tesla, it is actually impossible to rise forever, and it is impossible to make money and profit continuously. A fall is a high probability event.”

In fact, JPMorgan Chase poured “cold water” on Tesla’s stock price and market value soaring in December last year. JPMorgan Chase said that Tesla has been “severely overvalued” and its stock price will plummet by more than 80%.

JPMorgan Chase analyst Ryan Brinkman once stated in a research report that basically all valuation indicators show that Tesla’s stock price is “severely overvalued” and investors should not increase Tesla before it is officially included in the S&P 500 Index. hold.

There is a view that Tesla’s share price fell because investors worried that the automaker might be severely overvalued. At the same time, rising U.S. bond yields make companies that pay small dividends unattractive.

It is understood that in the fourth quarter of 2020, the US Bridgewater Fund will finally sell 35,000 Tesla shares. At this point, this fund has all liquidated the 212,000 Tesla shares it bought in the fourth quarter of 2019.

But Wedbush Securities analyst Dan Ives believes that the decline in Tesla’s stock price is temporary, and the recent correction is an excellent buying opportunity. In the next 12 months, Tesla’s stock price target is set at $950 per share. “Tesla’s market value may reach US$1.5 trillion to US$2 trillion in the next two years.” Ives said.

Multiple factors have caused the stock price to fall

“Tesla’s stock price may not see a surge similar to last year’s in 2021, and it will be difficult to achieve a new high.” Cao He believes.

Some analysts believe that the stock price has entered a callback period, chip shortages, market competition and other factors, which ultimately caused a sharp drop in Tesla’s stock price this round.

It is understood that Fed Chairman Powell stated on March 4 that the restart of the US economy may put upward pressure on prices and push up inflation. The market is currently generally worried that interest rates will rise.

Powell’s statement caused a shock in the U.S. stock market, leading to large-scale adjustments in many technology stocks such as Tesla and Apple. Analysis believes that technology stocks rely on the expectation of substantial growth in future cash flows, and once the level of inflation rises, the value of these future cash flows will undoubtedly be greatly discounted.

Image source: Photo by reporter Sun Tongtong (data map)
In addition, the current fierce competition in the field of electric vehicles has allowed more investors to stop focusing on Tesla, but gradually spread the “eggs” into other baskets. For example, Ron Barron, the founder of American Barron Capital, has sold about 1.7 million shares of Tesla and invested in Tesla’s rivals-General Motors Cruise and Amazon-backed Rivian.

It is understood that traditional automakers including Ford and Volkswagen have begun to seize Tesla’s market share in the United States and Europe. Currently, the sales of Ford Mach-E and Volkswagen ID.3 have soared in the US and European markets.

At the same time, the current global chip shortage also endangers Tesla. “The chip shortage has the same impact on global car companies, and this is a common problem.” Cao He said.

In the past few months, the global automotive industry has encountered unprecedented chip supply shortages, and many companies, including Tesla, have announced measures to stop production and reduce production. On February 25, Musk said that Tesla’s factory in Fremont, California was temporarily closed due to a shortage of parts.

In fact, at the financial report analysis meeting for the fourth quarter of 2020, Tesla has already issued an early warning that the shortage of chip supply may affect the company’s production goals in the first half of this year.

In addition, cost control is also a major factor affecting Tesla’s stock price. At the end of last year, Musk said in a letter to all employees that investors believed in Tesla’s profitability. However, if investors change their minds, Tesla’s stock price may plummet. At the moment, Tesla is building factories in Texas, USA and Brandenburg, Germany at the same time, which may put a lot of financial pressure on Tesla.