Shares of Tesla Inc. (NASDAQ: TSLA) have been in freefall, losing over 52% from their all-time highs in mid-December, as concerns mount over slowing demand, political entanglements, and investor sentiment shifting away from high-growth stocks. Even Tesla’s most loyal supporters, including long-term retail investors, are showing signs of hesitation.
Elon Musk’s Fans Lose Confidence as Tesla Faces Turbulence
Tesla, the biggest decliner in the S&P 500 Index this year, has been caught in a relentless selloff, with some analysts warning that further downside is likely. On Monday night, former President Donald Trump made an unexpected intervention, stating that he would purchase a red Tesla Model S to support Musk. While this helped Tesla stock gain 3% in premarket trading on Wednesday, it wasn’t enough to offset Monday’s 15% plunge, its worst single-day drop in months.
Even with the opportunity to buy the dip, many investors are reluctant to step in. Brian Mulberry, client portfolio manager at Zacks Investment Management Inc., believes Tesla shares could fall to $200 or below in the short term, despite holding over 270,000 shares as of December 31. He, like many others, is staying on the sidelines for now.
Wall Street Analysts Cut Tesla Price Targets
The sentiment on Wall Street has turned sharply negative, even among Tesla bulls. Over the past week, at least four analysts have lowered their price targets, while two long-time Tesla supporters have issued warnings about slowing sales and worsening sentiment.
Among the notable revisions:
- UBS analyst Joseph Spak cut his first-quarter delivery estimates, highlighting demand concerns.
- Evercore ISI analyst Chris McNally slashed his full-year vehicle delivery estimate from 1.88 million to 1.75 million.
- Analysts are worried about Tesla’s valuation, which remains significantly higher than its mega-cap peers. The stock currently trades at 75 times forward earnings, compared to 25x for the Magnificent Seven and 20x for the S&P 500.
Retail Investors Remain a Key Support Base – But for How Long?
Despite the downturn, retail traders have continued to buy Tesla stock, adding $2.8 billion worth of shares since last Tuesday, according to Emma Wu, a global quantitative and derivatives strategist at JPMorgan Chase & Co. However, cracks in the bullish thesis are emerging.
One of the most upvoted posts on Tesla’s Reddit investor forum on Tuesday read: “I keep holding, but at this point, I’m beginning to doubt my decision.” This highlights growing uncertainty even among Tesla’s most dedicated retail investors.
Musk’s Political and Strategic Distractions Weigh on Sentiment
A major concern among analysts and investors is Elon Musk’s increasing involvement in political matters. His focus on the Department of Government Efficiency has led to speculation that he may be too distracted to effectively manage Tesla. Meanwhile, the current Republican administration’s stance against EV subsidies poses a threat to demand in the U.S.
Tesla’s global sales are also faltering, with weak demand in China, Europe, and Australia. Reports suggest Musk’s growing political involvement has hurt the brand’s reputation overseas, leading to declining market share.
Options Market Reflects Bearish Sentiment
The options market is also flashing warning signs. Put options are trading at their highest level relative to calls since August, indicating increased hedging activity among investors. One-month implied volatility spiked to levels not seen since the end of 2022, when Tesla shares had previously collapsed to near $100.
Tesla’s Future: Rebound or Further Decline?
Tesla remains highly volatile, making it a difficult stock to trade in the short term. While long-term bulls believe that shares could rebound sharply, the near-term outlook remains highly uncertain. Mark Newton, head of technical strategy at Fundstrat, warns that Tesla is in “freefall,” making it difficult to time a buy-the-dip strategy.
With no major catalysts in sight, and key updates on Tesla’s fully self-driving tech and robotaxi project still months away, many investors are choosing to wait for more clarity before stepping back into the stock.
