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The crazy high-flying of Tesla has stopped. At around 960 dollars a share, investors are cashing in.
Teslas skyrocketing share price suffered a severe setback Wednesday. After Tesla shares had recently shot up by 60 percent, investors spontaneously cashed in - just befor...e the magic mark of 1000 US dollars per share. The balance after the close of the market: The shares were worth almost 20 percent less. For some, the fall in prices came faster than expected, but it was not surprising. There were plenty of warnings that the share price had run hot.
At its peak, the electric car pioneer was worth almost 160 billion dollars, far more than BMW and Volkswagen combined. Whether such a high valuation for Tesla is justified was hotly debated among experts. After high start-up costs, production problems and an extremely tense financial situation, which have severely eroded confidence, one or two people are now confident that the Silicon Valley-based company will be able to generate profits with battery-powered cars. Why the share price is plummeting at this particular time, at this level, therefore raises questions. Has Tesla become the plaything of speculators?
Market participants do not rule out the possibility that short sellers have a hand in the hype surrounding Tesla. If the so-called short sellers, who bet on falling prices, are unlucky and prices rise, they have to buy shares at higher prices in order to return their merely borrowed securities. Such bets push up share prices. Others, however, do not consider this automatism to be too likely in the case of Tesla. They point out that there have always been enough Tesla shares tradable in the market to cover the positions of the short sellers. But what else is behind the crash? Are we witnessing a bubble bursting here?
A damper on the China strategy
The boom-and-bust phenomenon is an integral part of the stock market. At Tesla, analysts had already pointed out parallels to the end of the Bitcoin hype in December 2017. At that time, many private investors were gripped by crypto fever. As freeloaders - at the last minute, so to speak - they had jumped on the bandwagon to profit from the hype in the short term. This phenomenon is commonly called "maid boom" because investors who do not pursue a longer-term interest invest. They are just waiting for the right moment to cash in. When this bubble burst, Bitcoin lost on average 80 percent. For the original crypto currency it was even the second price implosion at that time.
Tesla could also have caught a stock market flash in the pan. Google searches for the "Tesla share price" or "Tesla share price", which have quadrupled since the beginning of the year, speak for this. Apart from short sellers and last-minute investors who are only looking for short-term profit, the slide in Teslas share price could also - in part - be driven by concrete news.
Investors are concerned, for example, about the possible economic damage caused by the corona virus in China. Tesla Vice President Tao Lin announced on Wednesday on the social media platform Weibo that the delivery of cars from the new plant in Shanghai will be temporarily delayed and the company plans to resume production only on February 10. The two-billion-dollar factory is an important part of Teslas plan to produce more than half a million cars this year.
Will the party go on or not?
The coronavirus is also currently scaring the crap out of other car companies. The global economy is closely linked to China, and this is particularly true of the car industry. Hyundai had to stop its production in South Korea because of the epidemic, because parts that are normally supplied from China are missing. The car manufacturer is currently looking for alternative suppliers. Analysts expect that the longer the epidemic lasts, the more companies will be affected by similar problems. Teslas production in California could also run into problems with Chinese suppliers.
However, the fact that Shanghai was the trigger for the fall in share prices is contradicted by the fact that the company had already conceded delays of up to one and a half weeks for the start of Model 3 production last week. The share price had not reacted then.
For Argus research analyst Bill Selensky, production and demand for the Model 3 is nevertheless the decisive factor in the "crazy" Tesla rally. "When consumers think about buying an electric vehicle, they think about buying a Tesla - thats what drives the market," the "Financial Times" quotes Selensky. What moves the share is specifically the demand for the companys flagship. His colleague Dan Ives of Wedbush Securities even thinks a price of 1000 dollars per share is possible if the company succeeds in meeting the demand for electric cars in China. The bull party will probably continue, he predicts.
Rajvindra Gill of Needham disagrees. He recommends selling the titles. Tesla shares would trade at an extreme price-earnings ratio compared to many leading tech companies, Reuters quotes him. According to financial market data provider Refinitiv, the electric car maker is still trading at 55 times its expected net income in 2021, even after Wednesdays plunge. By comparison, Amazon is trading at 49 times, Apple at 22 times and Alphabet at 23 times.
We have never seen a stock rise so fast without considering the fundamentals or track record of the past," Reuters quotes Needham analyst Gill. The financial services provider Canaccord is also dampening expectations: "In view of the announcement of plans to produce 3000 Model 3s per week in a country where quarantine still applies, we assume that expectations will be corrected in the first quarter," analyst Jed Dorsheimer is convinced. He nevertheless leaves his price target unchanged at 750 US dollars per share.
Meanwhile, Tesla boss Elon Musk is unimpressed. The billion-dollar loss which he personally suffered as a result of the slide in the share price has at least not left him speechless. And why should he? In 2013 the papers were still available for a measly 35 dollars. Practically at the same time as the slide, he launched a new US factory in the US state of Texas on Twitter. "Giga Texas?" he asked. There were two possible answers: "Hell, yes!" and "Nah".
The result: Of the over 100,000 users, over 80 percent were in favor of a new factory. Tesla currently operates two factories in the USA and one in Shanghai, China. A factory is also to be built just outside Berlin. He wouldnt be Musk if he didnt have more projects in the pipeline. The odd surprise or two should be guaranteed in the future. Meanwhile, the slide on the stock market is continuing - at least shortly after the stock market opened.