Will Tesla Stock crash? Will be the question on everyone’s mind as we head towards 2020. The company’s stock has experienced a meteoric rise and is now worth over US$2 trillion. But with a high price tag, it’s important to realize that the price is largely due to hype and liquidity and not fundamentals. Investors who buy Tesla have very little understanding of the company’s value and often buy for momentum rather than fundamentals.
One famous investor and financial analyst, Jeremy Grantham, has said that Tesla has entered a speculative bubble and that the stock won’t live up to its valuation. Grantham’s recent report on the state of the US economy warns of an impending “historic” crash. Grantham slammed the Federal Reserve for pumping up asset prices and warned of a severe market crash. Jeremy Grantham’s warning is especially poignant because Tesla is being valued on multiples of the success of other great companies in capitalism.
Another factor that may drive the price of Tesla’s stock higher is the fact that it has “meme DNA”. The company has consistently been ranked among the top 5 users on the financial website Reddit. While there are tangibles associated with the company, the value is largely driven by intangibles and is impossible to measure using traditional financial metrics. However, if it does, it’s likely to benefit from the bullish sentiment of retail investors.
As of April 1, 2022, Tesla’s stock has held steady. This trend is likely to continue, as the company plans to produce 20 million EVs annually. Tesla’s plans to build factories near Austin and Berlin to increase the number of vehicles on the market. If it manages to do so, it’s going to boost the company’s revenue and stock price. But it’s still early to tell. If it doesn’t, Tesla will be forced to make big changes that will cause the stock to drop.
As an example, if Tesla stock reaches an unsustainable P/E ratio, value investors will have a difficult time making sense of it. Warren Buffett missed out on Apple and Amazon early on. But even when valuations fall drastically, it can burn bullish investors. So, if you’re not a value investor, it’s time to get out of this stock. Is it too high? And when will it crash?
There are two main factors that could trigger Tesla stock’s price decline. First, the S&P 500 index has $5.4 trillion in funds, which means that the company is a large bet for many investors. Second, the S&P 500 index’s price is a proxy for a stock’s liquidity, and Elon Musk’s tweets are likely to be worth watching. If Tesla shares crash, it could cause a rout on Wall Street.
The second reason why Elon Musk’s shares could fall is his recent Twitter post that he plans to sell a 10% stake. He also revealed that his brother had sold $100 million of his shares before the news about Elon Musk’s upcoming 10% stake was announced. Musk is required to disclose his share sale in Tesla’s SEC filing by the end of this week. And, of course, he also settled with the SEC for his comments.
On the other hand, investors should pay close attention to the Gigafactory Shanghai in China, which opened 10 months after the company broke ground. Not only did this facility localize the business in China, but it also boosted its overall production capacity. Tesla’s total production capacity now sits at a theoretical one million EVs per year. The company’s current model lineup has a good chance of growth and earnings.
If this trend continues, the company could sell as many as eight million vehicles. That’s a huge number, considering its current sales are only a drop in the bucket compared to the worldwide demand for EVs. In fact, the company already opened a factory in China this year and is planning a second one in Germany. Then, in a few years, the factories could produce their full capacity and generate earnings on a massive scale.