Tesla shares down 14% in the last month - TSLA outlook for 2023
By Jenny McCall
12:54, 13 December 2022
It’s been 12 hard months for tech stocks and not many have managed to avoid the enviable stock price decline - not even electric vehicle (EV) company Tesla (TSLA). Its share price has fallen 14% over the last four weeks. Here's a look at why TSLA stock is tanking and an outlook for 2023.
TSLA boss, Elon Musk has been a controversial figure this year. From his purchase of Twitter to him reinstating former US President Donald Trump’s social media account, Musk has been the cause of a lot of debate.
Musk's EV baby, TSLA, has also created a bit of a stir and struggled this year. Its stock price has plummeted 52%, versus the Nasdaq 100 (US100), which has fallen 28%
Here are some of the reasons why.
What is your sentiment on TSLA?
Tesla (TSLA) share price chart
Reasons for TSLA stock price decline
Analysts believe the TSLA stock split, which took place in August is still weighing on the stock, but that’s not the only headwind the EV manufacturer is dealing with.
Bloomberg reported that TSLA will cut production at its Shanghai plant this month by 20%.
"The production cut is noted as the first-ever voluntary cut made by Tesla and is due to a lack of demand. It’s not that there is no demand but that demand in domestic and Chinese markets for the Model 3 and Model Y (which are made in Shanghai) is not what the company was expecting,” Analysts at MarketBeat wrote in a note.
“The news comes just after official Chinese sources revealed Tesla sales had jumped 90% YOY aided in large part by the ramp of Shanghai production.”
So, it appears that support from Chinese markets for TSLA is waning thin.
In China currently, EVs are granted subsidies of approximately 12,600 yuan (£1,467) per vehicle while plug-in hybrid vehicles receive 4,800 yuan, enabling lower prices. But these subsidies are expected to end in 2023. This could have been one of the reasons why TSLA ’s fourth quarter earnings for 2021 rose above expectation and the group saw its net income rise to $2.3bn, while revenue swelled 65% to $17.7bn.
The US is also facing a similar issue to that of the Chinese markets.
The US recently passed the Inflation Reduction Act.
“The Inflation Reduction Act of 2022 (IRA), signed into law on August 16, 2022, directs new federal spending toward reducing carbon emissions, lowering healthcare costs, funding the Internal Revenue Service, and improving taxpayer compliance,” A report from McKinsey said.
Analysts have already said that the IRA undervalues TSLA stock.
CFRA analyst Garrett Nelson said: “Tesla stock is 40% undervalued after the Inflation Reduction Act signing. The Inflation Reduction Act's new $7,500 tax credit for electric vehicles could be a major tailwind to Tesla stock and the company's bottom line.”
But it’s not all bad news.
Can TSLA rebound in 2023?
"The signing of the Inflation Reduction Act was the equivalent of 'Christmas in August' for Elon Musk & Co., as we peg Tesla as the biggest winner from the new law, as most versions of the industry's two bestselling EVs (Tesla's Model Y and Model 3) become eligible for the $7,500 federal EV tax credit effective January 1, 2023," Nelson wrote in a note to clients.
"Previously, all Tesla vehicles had phased out of tax credit eligibility after hitting the 200K units per manufacturer cap."
With that said, as soon as we hit 2023, around 70% of the electric and plug-in hybrid vehicles formerly eligible for the existing tax credit will lose this incentive due to strict rules concerning battery sourcing and vehicle price caps.
But analysts still hold some optimism for TSLA stock.
Citigroup upped the stock to Neutral from Sell and raised the price target from $144 to $176 compared to the consensus of $278.
So, what can we expect from TSLA stock in 2023?
TSLA is currently dealing with new lows, as it tries to manage a myriad of headwinds and uncertainties.
But EV adoption is growing.
According to data from Motor Intelligence, in 2022 Americans purchased 724,000 EVs versus 326,000 in 2019.
In the UK the RAC estimates that there are around 456,000 zero-emission Battery Electric vehicles in the UK's roads - with in the region of 77,000 registered in 2022 alone - along with over 348,000 plug-in hybrids.
But supply chain woes and the problems with sourcing materials still exist. Most plug-in hybrids and all-electric vehicles use products such as lithium-ion batteries and according to Bloomberg New Energy Finance data, the cost of metals such as lithium, cobalt and nickel has spiked.
Volkswagen (VOW3) share price chart
When the chips are still down
Then you have the issue of chips.
According to J.P. Morgan Research: “More chips will become available in the second half of 2022 and the shortage is nearing the end. However, available chips may not be the right type to satisfy all demand. Volkswagen (VOW3) believes that semiconductor supply is unlikely to meet auto industry demand until 2024.”
All of this coupled with increased competition from other EV manufactures such as VW (VOW3) and Porsche (P911) mean that TSLA has its work cut out for it in 2023.
TSLA stock has seen some better days. On 13 December 2021, the stock was priced at $368.74, however its closing price on 12 December 2022 was £167.82. But all is not lost, with EV usage picking up, TSLA stock in 2023 could start to rebound, but it certainly has its work cut out if it’s to regain the momentum it saw in 2021.
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