Tesla, once the darling of many investors’ portfolios, is now a source of concern.
Tesla was worth $1.1 trillion at the end of 2021. However, as of December 28, it was worth $353 billion, a 68% decrease. The stock has dropped more than 70% year to date, and it is on track to have its worst month, quarter, and year ever.
It’s difficult to believe that from the beginning of 2020 to the end of 2021, shares of the same company increased by more than 1,100%.
How did Tesla go from a profitable safe bet to a loss-making machine? Is the stock poised to turn a corner in 2023?
Elon Musk’s’side hustle’ on Twitter
As if being the CEO of Tesla and SpaceX wasn’t enough, Elon Musk purchased Twitter for $44 billion and took over as CEO in late October. Musk sold $23 billion in Tesla stock over the course of 2022 to help fund the purchase of the social media company.
“It’s put a huge albatross over Tesla,” Wedbush analyst Dan Ives said. He estimates that 70% of Tesla’s drop is due to “Musk-Twitter.”
Ives predicted that if Musk did not buy Twitter, Tesla shares would be worth around $200. On Wednesday, the stock closed at nearly $113.
“There are brand issues associated with that,” Ives explained. “The last thing you want to do when selling to the masses is alienate 50% of the population,” he added, referring to Musk’s staunch support for Republican ideology.
In 2022, technology stocks took a beating.
This year’s Tesla selloff was not the result of a bubble. Due to the macroeconomic headwinds brought on by the Federal Reserve’s massive rate hikes aimed at taming inflation, technology stocks were one of the hardest-hit sectors in 2022.
The tech-heavy Nasdaq Composite is set to lose 35% this year, while the more diversely allocated S&P 500 is set to lose 20%. (Both indices include Tesla.)
But the tech selloff underscores why shareholders “need a steady pilot to get Tesla through this storm and not a Ted Striker,” according to Ives, referring to a character in the film “Airplane!” who develops a fear of flying.
Tesla has halted production at its Shanghai plant.
To aggravate Tesla shareholders, the company recently halted vehicle production at its Shanghai plant. According to Reuters, the suspension came as COVID-19 cases increased after the Chinese government reversed its restrictive zero-infection policies.
Furthermore, Reuters reported that the plant will shut down from Jan. 20 to 31, an extended break from the Chinese New Year that is unusual for the automaker.
The Shanghai plant produces the vast majority of Tesla’s products. According to Ives, the suspensions are unlikely to result in a shortage of Teslas because inventory is likely to build up, causing the company to discount vehicles.
Will Tesla’s stock rebound?
Analysts believe Tesla will begin to recover in 2023.
According to Garrett Nelson, senior equity analyst at CFRA Research, it’s a good sign that Musk is looking for someone to replace him as CEO of Twitter.
CFRA rates Tesla a “strong buy,” with a 12-month price target of $225 per share. Ives stated that he is “bullish on Tesla.” However, among bullish Tesla analysts polled by FactSet, he has one of the most conservative price targets of $175 per share.