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Tesla's demand problems spell a bad start to the year

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(Bloomberg) — Tesla Inc. started the new year on an ominous note, giving way this week on fresh concerns about weakening demand for its electric cars and sending its market cap briefly below that of Facebook parent Meta Platforms Inc. first time in over a year.

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Shares in the Elon Musk-led EV maker fell as much as 7.7% to $101.81 on Friday, but then erased losses to rise 1% as the broader market rallied after data economic growth showed that wage gains have slowed, a development that may help the Federal Reserve fight inflation. Earlier in the session, Tesla’s market capitalization dropped to around $321 billion, below the $334 billion target.

Tesla shares have been in freefall for the past three months, as anxiety over a technology sale and Musk’s worry over the Twitter Inc. acquisition took hold. Two major events in the first week of the new year – weaker-than-expected fourth-quarter deliveries and another round of price cuts on its vehicles in China – intensified those fears.

It’s these risks that make investors cautious about the stock’s future, at least in the short term.

“With all the moving parts for Tesla – price cuts in China and increased competition, there are currently too many unknowns to fully understand what is a proper valuation,” said Mark Stoeckle, chief executive of Adams Funds, which owns Tesla shares. . . “When you see a train wreck like this, it’s best to stay back and watch, not jump.”

While mega-cap tech companies, the main drivers of Wall Street’s bull market, struggled last year as they bore the brunt of rising interest rates and lower investor appetite for risky investments, the decline in Tesla still stands out. The company ended 2022 at the bottom of the NYSE FANG+ Index, an indicator of 10 tech giants including the likes of Meta, Apple Inc., Microsoft Corp.

Tesla’s valuation falling below Target also highlights the many similarities between the two stocks. Though they have very different businesses, both companies are facing widespread skepticism among investors about their futures, while their highly prominent CEOs have made recent mistakes.

Musk’s grip on retail investors, among whom Tesla enjoys near-cult status and who were net buyers of the stock even in its worst-ever performance, has also begun to waver. The first signs of retail burnout at Tesla are emerging, analysts at Vanda Research wrote in a note on Thursday.

“Retail investors have bought more Tesla shares in the last six months than overall in the previous 60 months, which means that this group is definitely feeling the pinch of the fall of the last few months,” said Marco Iachini and Giacomo Pierantoni da Vanda.

Sharp declines in value over the past year have ousted Meta and Tesla from the elite club of the $1 trillion US stock market – an exclusive grouping that only six companies were ever a part of. Just three Wall Street companies are now worth more than $1 trillion – Apple, Microsoft and Alphabet Inc.

Tesla shares ended 2022 with a record 65% drop, beating the Nasdaq 100 index’s 33% drop. fewer vehicles than expected last quarter, despite offering big incentives in its biggest markets.

Meta, in contrast, has fared better in recent months. Its shares are up more than 40% from their November lows, when the social media company embarked on drastic cost-cutting measures that included cutting more than 11,000 jobs. Since the beginning of this year, it has gained more than 5%.

(Updates to stock movement in second paragraph, add detail on retail trading in eighth and ninth.)

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