TSLA Stock Crashed Due to More than Coronavirus

  • Tesla (NASDAQ:TSLA) stock fell 12.8% on Thursday. Notably, the stock entered a bear market territory. When a stock falls 20% from its peak, it’s said to be in a bear market territory. NIO (NYSE:NIO), the Chinese electric car maker, also fell 4.6% yesterday.
  • While the coronavirus-led broader market sell-off is also leading to losses in electric vehicle makers’ stock prices, there’s more to the crash than the coronavirus.

TSLA stock crashed

Tesla’s stock price has fallen by almost 25% this week. The stock entered into the bear market territory on Thursday after losing 12.8%. NIO stock rose earlier this week after announcing a preliminary agreement to raise money. However, NIO stock fell 4.6% in yesterday’s trade. TSLA stock that has been on fire this year. Notably, the stock has come under selling pressure this week. To be sure, there’s a broader market sell-off. The Dow Jones Index and the S&P 500 Index also entered into a correction zone yesterday. The Dow Jones and the S&P 500 have fallen 10% from their recent peaks. However, the fall in Tesla shares has been severe.

Tesla’s stock price

When Tesla shares were rising in January and early February, some bullish observers started raising their target price. Ark Invest was among the most bullish observers. Ark Invest provided a 2024 bull case target price of $15,000 per share for TSLA stock. Even the firm’s bear case scenario puts Tesla’s 2024 target price at $1,500. Some observers see Tesla as the next trillion-dollar market capitalization company after Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT).

As I have said many times, Tesla is an incredible growth story. The company has a competitive lead in the electric car market. However, TSLA stock’s rally had most of the features of a bubble.

Electric car mania and NIO stock

Despite the craze over electric cars, we should remember that the story depends on government subsidies. China’s electric vehicle sales fell after it lowered the electric vehicle subsidy last year. Now, the country is looking at bailing out some domestic electric car producers. For example, NIO has a preliminary agreement with the municipal government of Hefei, Anhui Province. NIO stock rose sharply due to the news but pared more than half of its intraday gains amid coronavirus uncertainty. NIO stock is trading with a year-to-date gain of only 2.9%, while TSLA stock has risen 62% despite this week’s rout.

TSLA stock’s target price

Ashwath Damodaran, known as the “dean of valuation,” valued TSLA stock at $190 per share in June 2019. Looking at consolidated ratings, Wall Street analysts’ consensus target price implies a downside of 26% over yesterday’s closing price. The recent fall in TSLA stock is partially due to the coronavirus scare. Since there was an element of a speculative bubble in Tesla’s stock price, we see it revert towards a more fundamental value. Read TSLA Stock Spikes: Is It Fundamentals or Speculation? to learn more.