The last couple of months have been quite tumultuous for Tesla (NASDAQ:TSLA) shareholders. The US electric vehicle (EV) manufacturer has seen its valuation tumble by over 40% since its peak in December. This downward trajectory’s seemingly started to accelerate since the start of February, falling by 30% so far.
What’s going on? And is this secretly a buying opportunity for long-term investors?
Falling short of expectations
It’s no secret that Tesla’s stock trades at a premium valuation. Even today, after almost half of its market-cap has been wiped out, the forward price-to-earnings ratio still sits at a whopping 96! As such, seeing such extreme volatility at these levels shouldn’t be surprising. But what triggered this recent sell-off?
There are a lot of influencing factors, making it difficult to pinpoint the main catalyst. However, the general consensus seems to be, as usual, surrounding Elon Musk, who’s become even more controversial.
There was hope that a closer relationship with President Trump could prove advantageous for the company, but that doesn’t appear to have materialised. Furthermore, Musk’s involvement with the newly-formed Department of Government Efficiency (DOGE), as well as meddling in German politics, is seemingly turning off some potential customers.
The latest European car registration data for January was particularly concerning, given it showed a 45% reduction in Tesla registrations for the month. That’s despite a 37% increase in overall EV registrations over the same period. Meanwhile, in its home market, protests have started to break out in front of Tesla showrooms due to Musk’s activities within DOGE.
Where could the stock go from here?
The recent reputational damage surrounding Tesla’s understandably spooking some investors. However, while the short-term appears murky, the long-term trajectory of this business may still hold some promise. Investments in artificial intelligence (AI) and robotaxis pave the way to new market opportunities. And the firm’s industry-leading battery technology continues to give Tesla a significant advantage over its peers both in terms of lower costs and longer vehicle range.
With that in mind, it’s not too shocking to see a large number of institutional analysts shift their recommendations to Buy in light of the recent stock price turbulence. And overall, the average 12-month share price target now sits at $345.76 per share. That’s the equivalent of a 21.5% potential gain, transforming a £5,000 investment into around £6,075 by this time next year.
Of course, share price forecasts aren’t guaranteed. And with new trade wars brewing due to rising US tariffs, Tesla could endure further turbulence ahead. Personally, with so much uncertainty surrounding the brand today, this isn’t a stock I’m tempted to add to my portfolio right now.
However, I may have to reconsider my opinion should the share price fall further.
