Tesla (TSLA) Crashes Amid Sell-Off in Electric Vehicle Stocks

Shares for electric carmaker Tesla, Inc. (TSLA) crashed by as much as 10% to $858.83 on the morning of Jan. 24, dragging down the stocks of most electric vehicle (EV) manufacturers in their slipstream. Tesla competitor Rivian Automotive, Inc. (RIVN) fell to a 52-week low, below $60 per share, while Nikola Corporation (NKLA) tumbled by 10% from its Jan. 21 closing price to $6.70 before recovering.

According to Wedbush Securities analyst Dan Ives, "a lack of profitability, chip shortage issues, and host of production issues have cast a dark shadow over the [electric vehicle] sector." In an email to CNBC, the analyst continued, "In this risk off market, EV startups find themselves on the wrong side of this market storm with now execution is key to build back credibility on the Street one brick at a time."

As of this writing, Tesla is trading at $888.40, down roughly 6% from the day's start, while Nikola and Rivian are 7.6% and 4.6% below their opening prices.

Why Is Tesla Falling? 

While other EV makers are not profitable and still getting their bearings in the market, Tesla is a veteran. Its share price skyrocketed during the pandemic on the back of record deliveries and the Biden administration's decision to make electric vehicles a key piece of its climate change agenda. Investors, eager to get in on EV action, heaped money into Tesla's shares and helped the company surpass a trillion-dollar valuation. 

However, the stock has reversed its trajectory in 2022. Tesla's stock price is down by roughly 24% since the start of the year even though the company reported record deliveries and analysts posted glowing letters of recommendation.

But the car company must still contend with the overhang of a tech sell-off in the markets. Having fallen into correction territory, the Nasdaq is in the middle of a historic sell-off. Investors are deleveraging their portfolios and getting rid of speculative plays. Included in this list are stocks whose promised earnings are expected in the future. 

Tesla is an example. While the EV market has received a legislative boost in recent times, it has yet to pick up steam to compete on an even footing with gasoline cars. For example, electric vehicles comprised just 7% of the global market for automobiles during the first half of 2021. An interest rate hike by the Fed may have further turned off investors from Tesla because they reduce the value of future earnings that are discounted back to the present in modeling valuations.

Should Tesla Investors Press Panic Button?

For long-term investors in Tesla stock, the current crash in its price may be a familiar script. The electric carmaker's stock has always been a volatile play, and the current decline in its price, although severe, is not totally unforeseen.

Analysts say that the car company will dominate the future EV industry. For example, long-time Tesla bull Morgan Stanley released a note stating that Tesla does not have any close challengers. "We believe car companies and investors may need to rethink their EV strategies in terms of volume per SKU as we continue to see Tesla's model roll-out unfold," the firm stated. Out of the 41 analysts covering the company, only 11 have Sell ratings on the stock.

Their bullish thesis is centered on the company's fundamentals, During the pandemic, Tesla opened factories, devised workarounds to the chip shortage that afflicted the automobile industry, and reported record deliveries even as other car companies flailed amidst the pandemic's problems. Analysts have issued bullish estimates for Tesla's performance when it reports earnings on Jan. 26.