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The plunge in shares of Tesla (TSLA -8.88%) continued on Thursday with a new worry for investors. The electric-vehicle (EV) leader’s stock has plummeted 55% in just the past three months, and shares are down another 6.3% today, as of 11:25 a.m. ET.
Tesla shares haven’t hit this level since late October 2020. For context, that was just about six months after the company began delivering its flagship Model Y SUV.
The move looks like it could be a matter of timing, and might not represent a drop in demand for EVs. The potential for demand destruction — be it for EVs in general or due to mounting competition — is a top fear for Tesla investors.
The stock has been valued under the assumption that the company could grow sales at a pace close to 50% annually for several years. But Tesla just announced it was doubling incentives to $7,500 for U.S. customers through the end of the year, Reuters reported.
The timing coincides with a recent announcement by the U.S. Treasury Department related to discounts being offered for EV purchases through the Inflation Reduction Act beginning at the start of 2023. That announcement delayed restrictions on incentives until March, meaning Tesla’s U.S.-built vehicles are likely to qualify for $7,500 discounts through at least March. The restrictions likely would have limited incentives for Tesla buyers in the U.S. to $3,750. So Tesla might just be trying to get those who canceled or delayed orders to make the purchase now.
Image source: Tesla.
Tesla stock is now selling for a price-to-earnings (P/E) ratio below 25 based on average analyst estimates for 2023 profits. But Tesla has also increased discounts in Mexico, Canada, and China recently. That has investors concerned that there could indeed be a demand problem.
Overall long-term demand still looks strong, but investors won’t know how the short-term plays out until sales are reported over the coming months. It might be a good approach to buy shares in portions to first see how the EV landscape evolves in 2023. But now still looks like a good time to initiate a position for an aggressive part of a portfolio.
Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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