Tesla is showing why it is not your typical blue-chip stock

Analysts and sales data have suggested that Tesla is becoming less dominant in the US and Chinese electric-car markets. Tesla lost market share last month in the United States to Ford Motor’s new electric Mustang Mach E, analysts at Morgan Stanley said.

The China Passenger Car Association said Tesla sold 15,484 locally made cars in January. That was higher than a year earlier but lower than December’s total of 23,804. Tesla’s sales in China often fluctuate when the company exports batches of cars made at a Shanghai plant to Australia, Europe and elsewhere.

“Tesla has really benefited from that halo of, ‘It doesn’t really matter how many vehicles we sell this year or how much cash we burn,’” said David Whiston, a Morningstar analyst. “It’s all been, ‘Where are we going to be five or 10 years from now?’ But lately there’s been a bit more turbulence.”

Whiston added that Tesla’s share price was incredibly volatile and that it could be hard to deduce clear trends. “The way it fluctuates, I wouldn’t be surprised if it’s back above $US700 next week,” he said.

Institutional investors may have been selling some of their stakes in Tesla this year, but the regulatory forms that would reveal such sales will not come out for weeks. Some big shareholders slashed their Tesla holdings last year. Baillie Gifford, a Scottish investment manager and a longtime Tesla shareholder, cut its position to just over 27 million shares at the end of last year, down from nearly 59 million at the end of June.

Tesla has long been a favoured target of investors who aim to profit from declines in the price of stocks. Known as short sellers, they borrow shares and sell them, hoping to buy them back in the future at a lower price. If successful, short sellers can pocket the difference between selling and buying prices, but the trades can go horribly wrong if the price of a stock rises a lot. That happened to some investors who had bet against the shares of GameStop, the video game retailer.

As Tesla’s stock soared, starting in late 2019, short sellers would have lost billions of dollars on their bets, perhaps scaring some of them away from Tesla, which has gained wide popularity among individual investors, many of whom revere Musk. In the middle of February, nearly 48 million Tesla shares had been sold short, according to the Nasdaq stock exchange, down from nearly 61 million at the end of 2020.

Short sellers lost nearly $US41 billion on their Tesla bets last year, but the decline of the stock from its high has given them profits of nearly $US14 billion, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, a market data firm.

Whatever the competition brings, Tesla has enough cash on hand to finance its operations for some time. It took advantage of its soaring stock price last year by selling more than $US12 billion of new stock to investors and had more than $US19 billion in cash at the end of 2020. Tesla spent $US1.5 billion on Bitcoin early this year, and even if the company takes big losses on that wager, it will still have significant cash on hand.

The company, which did not respond to a request for comment, has come a long way from the dark days of 2018 and 2019, when some analysts wondered if it would survive as an independent business. Musk was struggling with increasing the production of Tesla’s most affordable car, the Model 3, and described the company’s problems as “manufacturing hell.”

Despite the recent drop, Tesla’s stock price is still up more than 300 per cent over the past 12 months. And its market value is more than the combined market capitalisation of Toyota Motor, Volkswagen, Daimler, GM and Ford — companies that sell many more cars than Tesla.

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Of course, anytime a company is valued well beyond its peers, it can be vulnerable to a sell-off if investors begin to have even small doubts. Even after the stock plunged from its high, Wall Street is extremely optimistic about Tesla. The stock trades at 144 times the profit that analysts expect the company to earn this year, a stratospheric valuation. Much hope in the market is placed on Tesla’s having a big slice of a much larger market for electric vehicles, which is why analysts expect the company’s profits to more than double by the end of 2025.

Investors who believed such forecasts helped pushed the stock up after late 2019, which drew in other investors. “As long as money is flooding in, you can make anything a self-fulfilling prophecy,” Bryan of Bond Angle said.