Tesla shares in freefall as market cap drops below $500 billion

Elon Musk's focus on Twitter and output problems in China are weighing heavily on the stock

The sell-off in Tesla shares that accelerated after the electric vehicle maker was reported last week to be planning to temporarily suspend output at its Shanghai factory pushed the company’s market valuation briefly below the coveted half-trillion-dollar mark.

Shares of the EV industry leader have been in a freefall over the past few months, sinking nearly 40 per cent since the end of September, compared with a 12 per cent advance in the S&P 500 Index.

The stock closed down 4.1 per cent at $160.95 in New York, recouping some of the losses from earlier in the session. The shares fell as much as 6.5 per cent on Tuesday, briefly taking its market capitalisation below $500 billion.

Concerns about EV demand, as well as chief executive Elon Musk’s preoccupation with the overhaul of Twitter, have weighed heavily on the stock this year.

Tuesday’s move was accompanied by heavy volume, nearly double the company’s 30-day average. A block of 3.11 million shares traded at a market value of $500 million late in the afternoon.

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Tesla first crossed above the $500 billion threshold in November 2020, after its share price jumped more than six-fold ahead of its inclusion in the S&P 500. A seemingly insatiable investor appetite for anything related to EVs — and more broadly technology — helped fuel part of that rally in a cash-rich market.

Spring forward two years and investors are now in a very different mood. Expensively priced stocks, whose valuations are largely pinned to the businesses’ future success and growth, have taken a big hit this year, as soaring inflation, an aggressive Federal Reserve, geopolitical turmoil and the threat of a recession make stable investments look more attractive.

In fact, Tesla is far from the only company in its league to see massive erosion in its value this year. Every member of the NYSE FANG+ Index has seen close to one-fifth of their market capitalisation evaporating.

Still, Tesla’s own troubles have made matters worse.

While the company struggled to cope with persistent supply shortages, soaring raw material costs and production disruptions — especially in China, Musk’s takeover of social media company Twitter and his focus on turning around that platform has worried investors that the EV maker is losing his attention at a crucial time.

As Tesla shares tumbled back to retrace all of the gains accumulated over the past two years, it lost its membership in the trillion-dollar valuation club, and gave up its spot as the fifth most-valuable company in the S&P 500 to Berkshire Hathaway. And the many EV startups, which had seen their market caps balloon when Tesla shares were rocketing, have also seen their valuations come down to earth.

Shares of Rivian Automotive have lost 76 per cent of their value this year, while Lucid Group has retreated 79 per cent.

Updated: December 14, 2022, 5:45 AM