This Year’s Rally, Tesla Is Losing a Big Force Behind 

A crucial driver of this year's advance in Tesla Inc. shares is losing momentum.

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Retail traders who have helped boost the electric-vehicle maker's stock up more than 50% in 2023 are pulling back this month, citing displeasure over a recent investor day and concerns about the economy's health.

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According to Vanda Research, net daily purchases of Tesla stock by individuals have declined by almost three-fourths from a peak of $436 million on March 1. For the first time in over a year, individual investors were net sellers of the stock on Tuesday.

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"After a brief period when Tesla's stock price appeared to be delivering reasonable value, the shares appear to be back in the region of pricey, and individual investors have pulled back," said Paul Allison, senior analyst at Finimize Ltd., an apron-owned investment analytics platform.

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It's a 180-degree turn from small-time investors, who have frequently fueled every Tesla surge by enthusiastic buying. Their enthusiasm has diminished in the aftermath of the March 1 investor day, which failed to provide specifics on a much-anticipated new vehicle. Since then, the stock has plummeted more than 6.5%, compared to the S&P 500's 1% decrease and the Nasdaq 100's almost 6% increase.

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Retail investors' caution has recently been heightened by concerns about banking industry troubles spreading in the aftermath of the failures of Silicon Valley Bank and Signature Bank.

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With such a high value, Tesla is especially vulnerable to any decline in market enthusiasm. The company trades at 44 times projected profits, compared to mid-to-high single-digit multiples for GM and Ford, and even outperforms the Nasdaq 100's average price-to-earnings ratio of 24.

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"The valuation level implies very high expectations for future operating margins and total market share," said Peter Garnry, head of equities strategy at Saxo Bank A/S. "As an investor, that is essentially your reference point." You are purchasing a stock that is priced near to perfection."

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Several recent setbacks have not fit into this storyline. In addition to the investor day failing to live up to the hype, the company announced another price cut on its most expensive vehicles, while the US National Highway Traffic Safety Administration launched an investigation into complaints that the steering wheel of certain new Model Y vehicles can fall off while in use.

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Wall Street has also been more cautious following the early rise, with at least three analysts lowering the stock this month.

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Tesla's "value now provides less space for disappointment," according to Berenberg analyst Adrian Yanoshik, who downgraded his recommendation to hold from buy earlier this month.

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A stock bounce this week, following a credit-rating boost that elevated Tesla's bonds to investment-grade status and some positive sales data from China, demonstrates how Tesla's strong momentum can swiftly take over once the narrative alters.

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In the short term, first-quarter delivery results anticipated early next month may potentially swiftly change opinion, especially if the figures show that the large price cuts implemented in early January stimulated demand. This would also highlight a crucial edge that Tesla has over its competitors, who have responded to Tesla's price decreases by decreasing their own.

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“Since Tesla has higher gross margins, to begin with, the margins at competitors are more at risk,” said Jerry Braakman, a chief investment officer of First American Trust.

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