Tesla's Struggles with Demand Signal a Difficult Start to 2021

Tesla's stock price has taken a hit this week, as investors worry about weakening demand for the company's electric cars. This has caused Tesla's market value to fall below that of Facebook's parent company, Meta Platforms, for the first time in over a year.

Tesla's shares fell sharply on Friday, at one point dipping below $100. The stock later recovered some of its losses, but ended the day down 1%. The sell-off came after economic data showed that wage growth has slowed, a development that could help the Federal Reserve fight inflation. Tesla's market capitalization also dipped below $321 billion, falling below that of rival Meta.

Tesla's stock has been in freefall over the past three months, as anxiety about the technology selloff and Musk's preoccupation with his acquisition of Twitter Inc. gave way to doubts about the demand for EVs in the face of a recession. Two big events in the first week of the new year - weaker-than-expected deliveries for the fourth quarter and another round of price cuts on its vehicles in China - have intensified those fears.

Investors are wary about the stock's future in the near term because of the risks involved.

Mark Stoeckle, CEO of Adams Funds, which holds Tesla shares, said that with all the moving parts to Tesla - China price cuts and increased competition - there are currently too many unknowns to get a good handle on what an appropriate valuation is. He added that when you see a train wreck like this, it is better to stand back and observe, not jump in.

Tesla's decline was the worst among the major tech companies last year. The company finished at the bottom of the NYSE FANG+ Index, which includes 10 of the largest technology companies. This is in contrast to the strong performance of these companies in the previous bull market.

Tesla's recent drop in value compared to Meta highlights the similarities between the two companies. Both companies are facing skepticism from investors about their future prospects, while their high-profile CEOs have made some recent mistakes. Although they have very different businesses, these commonalities could mean trouble for both Tesla and Meta in the future.

Tesla's hold over retail investors is starting to waver, according to analysts at Vanda Research. In a note on Thursday, the analysts said the first signs of retail investor exhaustion are emerging. Tesla has enjoyed an almost cult-like status among retail investors, who have been net buyers of the stock even during its worst-ever performance.

Retail investors have been buying more Tesla stock over the last six months than they have done in the past 60 months, indicating that this group is feeling the effects of the recent market decline.

The sharp value declines over the past year have ejected both Meta and Tesla from the elite $1 trillion stock market club in the US — an exclusive grouping that only six firms ever made into. Only three Wall Street firms are now worth more than $1 trillion — Apple, Microsoft and Alphabet Inc.

Tesla's stock price tumbled 65% in the last trading session of 2022, far exceeding the Nasdaq 100 index's 33% fall. In the first trading session of 2023, Tesla's shares fell more than 12% after the company delivered fewer vehicles than expected last quarter, despite offering hefty incentives in its biggest markets.

Meta has performed better than its competitors in recent months, with its shares climbing more than 40% from a November low. The social media company has embarked on drastic cost-cutting measures, including culling more than 11,000 jobs, which has helped to boost its performance. Since the start of this year, Meta has gained more than 5%.