Investors are reassessing the premise that justified Tesla’s astronomical stock price and made its founder, Elon Musk, the richest person in the world.
Tesla’s $1 trillion valuation made sense only if investors believed the electric car company was on a path to dominate the auto industry the way Apple rules smartphones or Amazon commands online retailing.
But Tesla’s shares have declined more than 40 percent since April 4 — a much steeper fall than the broad market, vaporizing more than $400 billion in stock market value. And the tumble has called attention to the risks that the company faces. These include increasing competition, a dearth of new products, lawsuits accusing the company of racial discrimination and significant production problems at Tesla’s factory in Shanghai, which it uses to supply Asia and Europe.
Mr. Musk has not helped the stock price by turning his bid to buy Twitter into a financial soap opera. His antics have reinforced the perception that Tesla lacks an independent board of directors that could stop him from doing things that might damage the company’s business and brand.
“From a corporate good governance perspective Tesla has a lot of red flags,” said Andrew Poreda, a senior analyst who specializes in socially responsible investing at Sage Advisory Services, an investment firm in Austin, Texas. “There are almost no checks and balances.”
Even longtime Tesla optimists are having doubts. Daniel Ives, an analyst at Wedbush Securities, has been one of the most steadfast believers in Tesla on Wall Street. But on Thursday, Wedbush lowered its target price for Tesla — the firm’s estimate of the shares’ fair market value based on future earnings — to $1,000 from $1,400. Mr. Ives cited Tesla’s problems in China, where lockdowns have throttled the supply of crucial parts and materials and demand for cars.
“There’s a new reality for Tesla in China, and the market is reassessing the risks,” Mr. Ives said.
Production problems in China have undercut one of the rationales for making Tesla the world’s most valuable car company. Tesla vehicles have been a hit with Chinese buyers, fueling hopes of supercharged growth in the world’s largest car market. Tesla’s market share in China topped 2.5 percent in the first quarter of 2022, closing in on luxury carmakers Mercedes-Benz, BMW and Audi.
But supply chain headaches in China are compounded by flagging consumer demand, said Michael Dunne, chief executive of ZoZoGo, which advises companies on the electric car market.
Chinese consumers “are edgy, they’re worried about the future,” Mr. Dunne said. “It’s a double whammy that Tesla confronts in China.”
Tesla shares are reacting in part to the same forces that are roiling stock markets around the world: war in Ukraine, rising interest rates, the threat of recession, supply chain chaos and surging inflation. But Tesla shares have fallen much more than other Silicon Valley giants like Apple or…
Read More: S&P 500 Closes Just Above Bear Market: Live Updates