Investing.com - Tesla shares fell more than 8% on Wednesday, their biggest drop since before Donald Trump's election victory last month, which sent the stock soaring.
Tesla closed at $440.13, however, still up 75% since Election Day on Nov. 5. Last week, the stock hit a record high, surpassing its previous high set in 2021. Before Wednesday’s pullback, the stock continued to climb, closing at a record high of $479.86 on Tuesday.
“Most investors we speak to are stunned by the magnitude of this rally and increasingly confused about how to deal with the stock given how far it has strayed from fundamentals,” Barclays (LON:) analysts wrote in a report Wednesday. The analysts maintain a “hold” rating on the stock, with a $270 price target.
The drop came in line with a sharp decline in the overall market, including a 3.6% drop in the S&P 500, the second-worst day for the tech-heavy index this year.
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Government position
Tesla saw a 38% gain in November, its best monthly performance since January 2023 and its 10th best ever. CEO Elon Musk has been a vocal supporter of Trump, spending $277 million primarily to support his campaign, according to Federal Election Commission filings.
Now, Musk, the world's richest person, is expected to lead the Trump administration's "Department for Government Efficiency," which is expected to act as an advisory office, alongside Vivek Ramaswamy, a former Republican presidential candidate.
The new role could give Musk, who also runs SpaceX and owns social media company X, influence over federal agency budgets and hiring, as well as the ability to push through troubling regulations. Musk signaled on a Tesla earnings call in October that he intended to use his influence with Trump to establish a “federal approval process for autonomous vehicles.”
Although Tesla has yet to produce self-driving taxis or offer self-driving transportation services, its major domestic rival Waymo announced Wednesday that it had conducted more than 4 million paid trips in self-driving cars in 2024 as it expands its commercial operations in the United States.
“Tesla is the only publicly traded company owned by Elon Musk, and has often been a reflection of Musk’s investment in himself,” Barclays analysts wrote. “This should naturally increase the value, but it also increases the risk of Tesla’s stock becoming overly dependent on Musk’s personality.”
A Quinnipiac poll released Wednesday showed that 53% of U.S. voters disapprove of Musk’s prominent role in the Trump administration. The poll showed a wide split along party and gender lines, with just 31% of women surveyed approving of Musk taking a prominent role in the next administration, while just 5% of Democrats did.
In recent days, Musk has also complained that the SEC issued a “settlement order” related to his sale of Tesla shares in 2022 while pursuing a purchase of Twitter, known as
An SEC spokesperson declined to comment on the matter, saying the agency conducts its investigations “in confidence to maintain the integrity of the investigative process.”
Tesla is scheduled to announce its fourth-quarter and year-end vehicle deliveries in January. With no major new vehicle additions to its product lineup since Cybertruck deliveries began in November 2023, Tesla is working to boost sales of its electric vehicles with a range of incentives, such as 0% financing.
What does Investing Pro data indicate?
Investing PRO data indicates that Tesla holds more cash than total debt on its balance sheet, with cash and cash equivalents exceeding its total debt. This is a positive sign, reflecting the company’s financial stability, which enhances its ability to meet its financial obligations and invest in new growth opportunities, in addition to its ability to withstand economic fluctuations.
Investing PRO data also shows that 22 analysts have revised their forecasts for Tesla’s upcoming earnings upward, reflecting growing confidence in the company’s ability to deliver better profitability in the coming period. This revision in forecasts is a bullish signal, as it indicates positive potential for the company’s financial performance, which could lead to a potential rise in Tesla’s (NASDAQ:) stock price.
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High P/E and fair value
In terms of stock valuation, it is noted that Tesla stock is currently trading at a high P/E multiple, which means that the stock price is relatively high compared to the company’s profits. This ratio is usually viewed as a negative indicator, as it may indicate an overvaluation of the stock, raising concerns about a possible price correction if the company is unable to keep up with these high earnings expectations, according to the “Pro Tips” tool available exclusively on Investing Pro, as this tool provides valuable and exclusive information and data about any company listed on the stock exchange, whether Arab or international.
Investing PRO data also indicates that the stock is moving away from its fair value after rising over the past period, as its fair value is now around $319, meaning that the stock has a chance of falling by about 27.5% compared to the current price.
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