Tesla’s 10% share price slump extends bear run into 2023

Tesla has started 2023 much as it finished 2022, with the stock falling 8% over the first four sessions of the year. Despite a slump in demand in the crucial Chinese market, disruptive innovation investor Cathie Wood has bought big during the dip, and an Edward Jones analyst feels the stock’s current price doesn’t reflect its long-term value.

- Tesla’s stock falls 12% in first session of 2023

- Cathie Wood doubles down, saying Tesla can reach $1,500

- Ark Innovation ETF, which holds Tesla, is down 63% in past 12 months

Tesla’s [TSLA] share price fell more than 12% in the first trading session of 2023, carrying the downward streak of Elon Musk’s EV manufacturer into the new year.

Underwhelming delivery data has fuelled fears that Tesla is facing a severe slowdown of demand for its luxury vehicles. Steep discounts have been offered to fuel demand in the Chinese market; a Model 3 is now priced roughly 30% cheaper in China than in the US.

Despite its troubles, disruptive technology investor Cathie Wood, however, has continued to double down on her backing of Tesla stock. Wood exploited the dip in value to acquire over 176,000 Tesla shares between her flagship Ark Innovation ETF [ARKK] and the ARK Autonomous Technology & Robotics ETF [ARKQ], worth approximately $19m, on 3 January.

A long-time advocate of Tesla stock, Wood recently told Barron’s, in an interview prior to the release of the deliveries miss in China, that Tesla’s stock has “miles to run” and could hit $1,500 in the next five years. Tesla closed 6 January at $113.06.

Tesla struggles with vehicle deliveries

Despite missing analysts' lofty expectations, Tesla’s business grew rapidly last year. The EV maker delivered a record 1.31 million vehicles during 2022, a 40% increase year-over-year. Nevertheless, analysts were shocked by the news that 405,278 vehicles were delivered in the final three months of 2022, when most had expected the figure to be between 420,000 and 430,000.

Tesla faced major headwinds; not least the closure of its largest production plant in Shanghai in July thanks to Covid-19 outbreaks. However, the company’s failure to meet delivery expectations despite slashing prices has concerned analysts.

Morgan Stanley auto analyst Adam Jonas, a long-time Tesla bull, published a note on 3 January suggesting he expects Tesla’s EPS to fall during 2023. In a note published on 4 January, Wedbush analysts Dan Ives and John Katsingris forecast “a fork in the road year ahead for Tesla that will either lay the groundwork for its next chapter of growth OR continue its slide from the top of the perch”.

Analysts disagree over impact of Twitter on Musk’s Tesla management

Many analysts and investors view Musk’s takeover of Twitter as a major source of the stock’s woes, with Ives calling it “a distraction” from the “dark macro storm” Tesla currently faces. Musk has stated his intention to appoint a CEO of Twitter imminently, although he is yet to do so.

Cathie Wood, however, is not the only investor backing Tesla’s long-term growth prospects. Edward Jones analyst Jeff Windau boosted his Tesla rating from ‘hold’ to ‘buy’ on 5 January, telling investors in a research note that while macroeconomic headwinds would weigh on Tesla in the short term, the stock would see an increase in value over the long term as global regulations favour the electric vehicle space.

Statista data forecasts the electric vehicle market to grow at a compound annual growth rate (CAGR) of 17.02% to $846.7bn by 2027. China is expected to be the largest market, with $180.5bn in sales in 2023 alone (out of a total global market of $451.6bn for the year). An October report from Beyond Market Insights anticipates the industry could be worth over $1.1trn by 2030.

Funds in focus: Ark Innovation ETF

The Ark Innovation ETF holds Tesla at a 6.75% weighting, making it the fund’s third-largest holding, as of 9 January. Despite Woods’ new year splurge, the 67% decline in Tesla’s share price over the past 12 months means her fund has suffered, too. Tesla shares accounted for 10% of the fund last October.

Tesla’s woes have been a major drag on the fund, which fell 62.8% over the 12 months to 9 January. Top holding Zoom Communications [ZM] fell 59.5% over the same period.

Tesla is a much smaller component of the Global X Electric and Autonomous Vehicles ETF [DRIV] at just 1.48% of the fund as of 5 January. DRIV fell 30.8% in the year to 9 January, outperforming both Tesla and ARKK over the period.

The consensus 12-month price target for Tesla among 36 analysts polled by Refinitiv is $230.00, representing 103.4% upside from the recent closing price of $113.06. The high target of $436.00 represents 285.6% gains, while the low target of $24.33 sees the stock falling 78.5%.