12/22/2022: Tesla Stock is Cratering

Down ~60% in 3 months

TSLA 0.00 stock is a falling knife and is down almost 70% from the ATH of $400, rivaling META 0.00 ‘s precipitous fall. As mentioned in one of my previous posts, I thought TSLA 0.00 stock was overvalued at ~$220 with an EV/EBITA ratio of ~42. Tesla is now trading at a more reasonable EV/EBITA ratio of ~25 but there’re a lot of headwinds including increased competition, much higher (auto loan) interest rates and a rapidly cooling economy. Tesla mostly holds no inventory for the past couple of years as the cars were sold before they were built but things seem to be changing. Tesla started offering $7,500 discounts on Model 3 and Model Y vehicles delivered in the United States this month, signaling a consumer demand shift for its cars. If the factories churn out more cars than they can sell, Tesla will become less profitable or even lose money as the factories were very expensive to build and the inventory carrying costs can be high due to higher interest rates.

Elon’s Twitter distraction and his general erratic behavior also doesn’t help. Although in a Twitter space conversation earlier today, he promised he will not sell TSLA 0.00 stock for the coming 18 to 24 months, until 2024 or 2025, adding that he sold some stock to prepare for worst-case scenarios at Twitter. I don’t know how low TSLA 0.00 will go but chances are it will probably only take one very bad quarterly earnings for TSLA 0.00 to go below $100. Even at $100, TSLA 0.00’s EV/EBITA ratio of ~20 isn’t exactly cheap.