Sell-off in Tech Stocks Due to Inflation Concerns
Impact of Intensified Electric Vehicle Competition Within the Industry
[Asia Economy Reporter Kim Suhwan] Tesla's stock price has plummeted 36% from its peak in January, raising concerns about a bubble burst.
On the 8th (local time), Tesla closed at $563 on the Nasdaq, a representative U.S. stock index, down 5.8% ($34.95) from the previous day. This marks a decline of about 36% from the high on January 26. It is also the lowest level in three months since Tesla's stock price reached $567 on November 30 last year.
Tesla's market capitalization also dropped from $824 billion on January 26 to $525 billion, nearly a $300 billion decrease. After surpassing Facebook in market cap shortly after being included in the S&P 500 index in December last year, Tesla has fallen behind Facebook again due to the continuous decline in its stock price.
This decline in Tesla's stock price is analyzed to be due to investors selling overvalued tech stocks amid rising U.S. long-term Treasury yields and inflation concerns. Following the Nasdaq index hitting an all-time high on the 12th of last month amid growing inflation worries, the stock prices of growth stocks, including U.S. tech stocks, have continued to fall. The Nasdaq index closed down 2.4% (311 points) at 12,609.16 on this day, marking a decline of about 10.5% compared to the 12th of last month.
Nevertheless, Tesla's decline is reported to be particularly pronounced among tech stocks. Leading tech stocks Apple and Amazon fell 13% and 9%, respectively, compared to the 12th of last month, but Tesla dropped 29%.
This weakness in Tesla is analyzed to be due to increased uncertainty about future earnings prospects. Fortune reported, "As inflation concerns grow, the future earnings outlook for tech stocks relying on future profits, including Tesla, has become more uncertain," adding, "Especially since Tesla showed a particularly steep rise in stock price last year, this uncertainty has had a greater impact on Tesla."
Additionally, the increasingly fierce competition in the electric vehicle sector within the automotive industry appears to have contributed to Tesla's decline. According to a February U.S. automotive market analysis report released by Morgan Stanley on the 3rd, Tesla's market share in the U.S. electric vehicle market in February dropped to 69%, down 12 percentage points from 81% the previous year.
Moreover, Tesla is lagging behind traditional strong players such as Volkswagen in the European electric vehicle market. Tesla, which held the number one market share (31%) in the European electric vehicle market in 2019, fell to 13% last year, ranking fourth behind Volkswagen, the Renault-Nissan group, and Mitsubishi.
As a result, Tesla's target stock price has also been significantly lowered. According to the investment media Investor Business Daily, most analysts expect Tesla's stock price to rise by only about 1% over the next 12 months.
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