There are three significant risks I am watching for with Tesla (NASDAQ:TSLA) as the year is coming to a close. Since Tesla stock is close to a low that has yet to be seen in years, these problems could cause problems in the coming year if they don’t get better quickly. Unfortunately, recent trends are getting worse, making the pricing decisions management will have to make in the coming months even more interesting.
Let’s start in China, where Tesla seems to have a problem with demand. As the company’s EV subsidy is set to end in less than three weeks, the company has already lowered the prices of the Model 3 and Model Y and put in place several other incentives. There have also been rumors about cuts to production, which Tesla has, for now, denied. We get weekly insurance data every Tuesday, and Troy Teslike, a key Tesla watcher, thought that 16,000 units would be sold in the most recent week. Unfortunately, the actual number was just under 13,000 vehicles, which was far from what was expected. If sales don’t pick up in the coming months, it will be intriguing to see how prices change.
Gas prices in the US have gone down. As oil prices have recently dropped to new lows for the last 52 weeks, gas prices have also gone down significantly. In one month, the average gas price across the country has gone down by more than 50 cents per gallon. We are nearly 40% below the peak.
Credits in the Inflation Reduction Act will help increase demand for electric cars starting in 2023. Still, lower gas prices could hurt demand, especially in the winter when demand is naturally lower. Because of Elon Musk’s recent tweets, there are also worries about how much Tesla’s main customers will want to buy. As the CEO tries to get the social media site back on track, he is offending more people, hurting Tesla’s brand image.
Also, the prices of used Teslas have decreased over the past few months. Some of this could be because of the things listed above, but it could also be because of the Fed’s ongoing efforts to lower overall inflation and worries about an upcoming US recession. The used Tesla vehicle index has dropped by almost $2,000 since last month, making it the lowest it has been in 17 months.
A few months ago, some used Tesla models were more expensive than buying a brand-new Tesla. Management has said that sales of used cars are one reason Tesla’s services and other businesses have done well this year, and segment margins have improved. Now that the prices of used vehicles are going down, there may be a slight drag on the demand for new cars and a subtle effect on the margins of used vehicles.
With all of these things going on, Tesla shares haven’t been doing as well as the market as of late. Shares hit a new multi-year low on Tuesday morning, and even some of the biggest supporters don’t seem to be buying much. As of 10 a.m. on Tuesday, Tesla’s implied weight in the top ARK Innovation ETF (ARKK) was just above 7%, the lowest level I’ve seen since I started keeping track in April 2020.
Cathie Wood’s best ETF had nearly 13% of its assets in the name at its peak. During that time, Tesla’s implied weight in the ARK Next Generation Internet ETF (ARKW) would be at a record low of 6.50%. This year, Tesla stock has dropped a lot after Cathie Wood set a price target of more than $1,500 after considering the stock split. Tesla is no longer the biggest holding in these two Ark Invest ETFs; it is now third in ARKK and fourth in ARKW.
In the end, Tesla’s situation isn’t looking good right now. China is the most important sales market for the company, but registration numbers continue to be disappointing. Falling gas prices in the US could hurt demand for electric vehicles at a time when Elon Musk’s tweets need to do more to help. Used Tesla prices keep decreasing, and one of Tesla’s biggest fans seems interested in something other than buying one right now. Shares just hit a new multi-year low. How much lower they can go may depend on when some negative factors start to fade.
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