If Tesla (TSLA) investors had forgotten what down days feel like, they have been given a curt reminder over the past month. The stock has endured some brutal sessions, which have erased its gains for the year.
In general, there has been volatility across the board, and most notable in the running hot tech sector. But Wedbush analyst Daniel Ives pinpoints two specific reasons why the wheels recently came off for the leading EV maker.
The first is related to Bitcoin; Tesla just recently purchased $1.5 billion’s worth of the volatile asset. The fact Tesla made $1 billion in a month from its investment, and thereby putting all its 2020 EV profits in the shade, has not been lost on many. However, the recent Bitcoin sell-off, Ives believes, has driven some investors away in the near-term.
And although the analyst believes Tesla “aggressively embracing” Bitcoin amounts to a strategic long-term move similar to the ones made by Square, Mastercard and MicroStrategy, there is a danger it will divert from the main purpose.
“Tesla is an EV play entering the golden age of EVs and there is a lingering worry that the Bitcoin sideshow could overshadow the overall EV growth story playing out for Tesla in 2021 and beyond in the eyes of the Street,” said the 5-star analyst.
The second reason behind the recent weakness is due to Tesla’s announcement it will stop selling the Model Y, the company’s lowest priced offering, alongside “continued price cuts.” These developments have raised “demand concerns” on the Street. Couple this with auto giants such as GM, Ford and others getting in on the EV action, and investors could be mulling over the increasing competition in the space.
Moreover, conversations around Tesla are opinionated and strong, which the latest developments have done nothing to quell. Ives expects the roller-coaster ride to continue.
“Weaving Bitcoin into the mix, Tesla shares now have added volatility and noise driving the emotional bull/bear debate around the name,” Ives concluded. “It’s ‘buckle up the seat belt time’ again for Tesla's stock with more volatility on the horizon.”
To this end, there’s no change to Ives’ Tesla rating which remains a Neutral (i.e. Hold). However, Ives might as well have said Buy, considering the $950 price target suggests upside of 39% from current levels. (To watch Ives’ track record, click here)
Overall, the battle seems to be torn between the bulls and bears as TipRanks analytics demonstrate TSLA as a Hold. Based on 28 analysts tracked in the last 3 months, 7 say Buy, 14 suggest Hold, and 7 recommend Sell. Yet, the bears are in the driving seat, as the average price target hits $603.83 and implies possible downside of 11.5% in the year ahead. (See TSLA stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.