Tuesday, 31 October 2023

Why Tesla Stock Dropped Below $200 Today

by Rose White

Shares of Tesla (NASDAQ: TSLA) dropped below $200 today for the first time since late May. The stock plunged as much as 6% early on Monday and was still trading down 4.4% as of 12:24 p.m. ET.

EV demand is the question

Investors have long given the electric vehicle (EV) leader a lofty market cap valuation. Even after Tesla shares have dropped 25% over the last three months, its price-to-earnings (P/E) ratio remains over 60. That’s because investors see huge growth as the company builds new manufacturing plants. Production is expected to grow by about 50% annually for several more years.

But that can only happen if there is demand for EVs in general and Tesla vehicles specifically. Today, along with a quarterly earnings release, the battery maker (and Tesla supplier and partner) Panasonic said it had decreased automotive battery production in its fiscal quarter, ended Sept. 30, due to a global slowdown in EV demand. It also lowered its annual profit guidance by 15% due to the change.

The battery maker said that a decline in sales of high-end EVs led it to cut production in the hope of rightsizing inventories. Panasonic also said, however, that North American demand remained steady, and in fact it forecasts increasing sales there. But Tesla shareholders are selling now and asking questions later.

Even Elon Musk is cautious

Panasonic said sales of high-end EVs are being affected by their exclusion from tax credits offered for lower-priced EVs through the Inflation Reduction Act (IRA) in the U.S. But the news from the battery maker today adds to concerns after several automakers took a cautious outlook for EV sales in the near future.

Ford and General Motors recently throttled back plans for investments to grow EV production. And even Tesla CEO Elon Musk recently voiced concerns related to higher interest rates for borrowers making EVs less affordable.

Tesla’s stock has dropped by about 25% over the last three months, reflecting those concerns. That correction offers investors a chance to buy at one of its lowest levels in nearly six months. Even if Tesla grows slower than expected, today’s price could create a fine long-term investment.

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Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.