Tesla Inc.’s (TSLA) stock took a tumble on Tuesday, plummeting 6% as part of a broader market rebalancing. This correction primarily impacted stocks that enjoyed a surge during President-elect Donald Trump’s campaign momentum, dubbed the ‘Trump Trade.’ The decline in Tesla shares comes as hedge funds reassess their positions after a remarkable 36% surge in the stock’s value since November. This rally significantly outpaced the Nasdaq 100’s 4% gain during the same period.
The rebalancing is driven by concerns surrounding Tesla’s valuation, which has become a point of contention among market analysts. Gary Black, Managing Partner of The Future Fund LLC, shed light on the situation, noting that Tesla’s forward earnings estimates have remained largely unchanged. While fiscal year 2025 and 2029 projections saw slight increases, less than 1%, they haven’t significantly improved.
Black explained that many hedge funds, with substantial gains, will rebalance their positions when the size of a particular holding deviates from their model allocations. He also highlighted that despite the potential for a supportive president to expedite approvals for robotaxi deployment, it wouldn’t necessarily boost Tesla’s Full Self-Driving technology capabilities.
Tesla’s current valuation, at a staggering 104 times projected 2025 earnings, intensifies the pressure on the company to meet CEO Elon Musk’s ambitious guidance of 20-30% volume growth in fiscal year 2025. This multiple significantly surpasses Tesla’s three-year average forward price-to-earnings ratio of 55, highlighting the inherent risk associated with the company’s current valuation.
Despite these concerns, Black remains optimistic about Tesla’s growth prospects, citing the anticipated launch of a new $25,000-$30,000 vehicle in the first half of 2025. He believes this move could significantly expand Tesla’s total addressable market by tapping into the compact category.
The analysis of Tesla’s stock decline comes amid broader developments for the company. Musk recently accepted a new role in the Trump administration, leading a new Department of Government Efficiency tasked with streamlining federal operations. However, Tesla’s immediate focus remains on fourth-quarter deliveries. The company needs to deliver at least 514,926 vehicles to surpass its 2023 total of 1.81 million units. Despite the current market pressure, Tesla’s stock has retained a 63% gain since October’s earnings report, fueled by its expanding delivery operations and the promise of its autonomous driving technology.
Tesla’s stock closed at $328.64 on Tuesday, representing a 6.10% decline for the day. In after-hours trading, the stock experienced a further 1.02% drop. Year to date, Tesla’s stock has surged by 32.29%, according to data from Benzinga Pro.
