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Reasons Why Tesla Investors Should Be Afraid Now

Tesla

Tesla (NASDAQ: TSLA)

Tesla (NASDAQ: TSLA) stock price decline continued on Thursday as investors fretted about fresh news. In the previous three months alone, shares of the electric vehicle (EV) market leader have dropped 55%. As of 11:25 AM ET today, they have dropped another 6.3%.

The last time Tesla stock was this high was in late October 2020. That was around six months after the start of sales for the company’s flagship Model Y SUV.

What’s the Reason?

There may not have been a decline in demand for EVs since the change was only an issue of time. Investors’ biggest concern is the possibility of demand destruction, either for EVs in general or due to increasing competition.

Tesla stock price is based on the expectation that revenue would increase by nearly 50% each year over the next several years. However, as reported by Reuters, Tesla has now stated that it would double incentives to $7,500 for U.S. consumers until the end of the year.

What’s Next?

This aligns with a statement made by the U.S. Treasury Department about upcoming discounts on EV purchases under the Inflation Reduction Act, which will go into effect at the beginning of 2023. This statement put out the end of incentives until March, so Tesla’s U.S.-built cars will still be eligible for the $7,500 discounts until then. If the limits had been in place, the maximum incentive for U.S. purchasers of Tesla would have been $3,750. Tesla may attempt to encourage impulsive purchases from individuals who previously canceled or postponed their reservations.

Based on consensus earnings projections for 2023, Tesla shares are now trading at a discount to their intrinsic value, with a P/E ratio of less than 25. Although, Tesla has lately boosted discounts in other countries, including Mexico, Canada, and China. That has the market worried that there may be a demand issue.

Overall, demand still seems solid in the long run. Still, Tesla stock investors won’t know the short-term story until sales figures for the following months are announced. It might be wise to acquire shares gradually, waiting to observe how the EV market develops in 2023 before making any significant investments. But it seems like a good moment to start investing in a more risky section of your portfolio.

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About the author: I'm a financial journalist with more than 3 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.