Tesla Stock Suffers December Selloff Amid Demand Concerns, China Production Pause

Tesla gave up almost a third of its value during the recent seven days of losses, trading back at August 2020 levels. Shares recovered somewhat Wednesday, closing 3.3% higher.

Despite the company’s delivering consistent earnings and being on-pace for its biggest ever annual profit, Tesla investors have been spooked by a variety of factors, including Mr. Musk’s pursuit of Twitter Inc., which has kept the car maker’s chief executive focused on buying and then turning around the social-media platform. 

Adding to investor worries have been questions about demand amid rising interest rates, which have stung once-triumphant growth stocks across the market. Those intensified in recent days as Tesla offered large discounts to get shoppers to take vehicles before year-end. It is the kind of move more closely associated with traditional auto makers than with Tesla, where Mr. Musk has often poo-pooed the marketing gimmicks employed by legacy car companies.

Despite deploying some old-school car-making sales tricks, Tesla, the largest auto company by market value, still sports valuations that outstrip its traditional Detroit, European and Asian rivals. Even after its recent tumble, Tesla trades with a price-to-earnings ratio of around 19.4, compared with roughly 16.7 for the S&P 500.

Ford Motor Co.

and

Toyota Motor Corp.

, by comparison, recently traded at around 6.4 times and 8.5 times their projected earnings.

Tesla isn’t the only once-hot auto stock to sharply go into reverse. Shares in smaller EV rivals

Rivian Automotive Inc.

and

Lucid Group Inc.

both have fallen more than 80% this year. 

Mr. Musk added to demand concerns last week when he blamed high interest rates for weighing on vehicle demand. He also said recession fears could weigh on Tesla’s decision to pursue a share buyback that some investors for months have been clamoring for. Mr. Musk in October said a meaningful stock repurchase was likely. 

The company’s dramatic stock plunge this year has lured investors in to bet on a further decline. Bearish Tesla investors have made around $17 billion in 2022, their first gains on record, according to S3 Partners data. 

“I would expect more short selling in the stock until we see a firm priced floor established,” said

Ihor Dusaniwsky,

a managing director at S3. 

Tesla also has been grappling with production issues. Earlier this year China’s strict Covid policies temporarily idled the car maker’s Shanghai plant, its largest factory by volume. Later, Mr. Musk lamented that new factories in Texas and Germany were “gigantic money furnaces” Production concerns were rekindled this month in China when the company again suspended car production at its Shanghai plant on Saturday, extending a planned eight-day production halt at the facility, people familiar with the matter have said.

Mr. Musk has been upbeat about Tesla’s operational performance, repeatedly praising teams for their execution. 

Tesla shares have fallen 68% this year.

The EV Rivals Aiming for Tesla’s Crown in China

In recent months, Tesla’s brand image also has taken a hit, in part from Mr. Musk’s tumultuous involvement in Twitter and some of the commentary he has made on the platform, according to brand surveys 

Still, individual investors have been doubling down, purchasing a net $16 billion of Tesla stock this year, according to data from Vanda Research. That makes it the most popular buy among individuals this year, dethroning

Apple Inc.

as the most-purchased stock by individuals. On Wednesday, for example, Tesla shares were the most popular buy among individual investors on the Fidelity brokerage platform. 

Institutional and individual investors have also dished out more for options tied to Tesla than any other stock, according to Cboe Global Markets data as of Dec. 15. 

“It’s one of the most popular stocks out there,” said

Viraj Patel,

global macro strategist at Vanda Research, who follows retail investing. The selloff “draws bargain hunters.”

Write to Meghan Bobrowsky at [email protected] and Gunjan Banerji at [email protected]