In the first few weeks of 2020, Tesla (NASDAQ:TSLA) had the pedal to the floor. TSLA sock roared from a low of $421.71 to a high of nearly $970. All after coming off a great 2019 that saw the delivery of 367,500 vehicles (50% more than in 2018). Better, the company pledged to deliver 35% more vehicles in 2020.
Wedbush’s Dan Ives called for $1,000 a share, seeing “clear momentum around global EV demand inflection heading into 2020 and beyond, with Tesla leading the charge.”
ARK Investment Management’s Catherine Wood said Tesla was still undervalued, and says the stock could be worth up to $7,000 a share.
Revving the engine, global demand for electric vehicles is explosive. According to the International Energy Agency, we could see about 130 million EVs on the road by 2030, a considerable jump from 5.1 million in 2018.
However, even with all of that great news, I’d avoid shares of Tesla – at least temporarily.
COVID-19 Popped Tesla’s Bubble
All was going quite well until the coronavirus went nuts around the world. More than 100,000 people have now been affected. We’re nearing a death toll of 4,000 around the world, with no signs of containment. Companies are already warning.
A warning from Tesla may not be far off either. After promising aggressive growth in China, that’s not likely. In fact, China’s state-run Automotive Information Net “has reported that registrations of new Tesla cars were down 46% between December and January, to 3,563 vehicles,” notes Fortune contributor David Z. Morris. Worse, car sales in China in the first two weeks of Feb. 2020 were down 92%.
Considering Tesla is being priced for aggressive China sales growth, this news isn’t encouraging. With factory shutdowns and lower sales, investors are greatly concerned the Tesla cannot hold current prices. Right now, the stock is being valued on insane projections for 2020 sales that may not materialize this year.
As smart investors wake up to that fact, the stock will drop further. Worse, an oil price war between the Saudis and Russia have crushed oil prices, which could challenge electric vehicle sales. Historically, when oil prices call, electric vehicle sales tend to slow down.
Analysts Are Concerned With Growth
Morgan Stanley analyst Adam Jones just cut his price target on the stock from $550 to $480, and lowered 2020 delivery numbers:
“While acknowledging the situation remains fluid, we are marking to market our forecasts for Tesla in the midst of the COVID-19 pandemic, mainly to adjust for lower expectations of growth outside of China. We believe it is reasonable to assume that sentiment and financial strength will likely in some way be impacted by the sharp correction in global markets as well as the concerns around public safety and interruption in personal mobility.”
He also lowered his fiscal 2020 delivery estimates to 452,000 units from about 500,000.
Plus, after calling for Tesla to hit $1,000 a share, Ives said, “Supply chain issues in China remain a lingering worry. Given the demand overhang from the coronavirus outbreak in China as well as Europe we believe that 1Q unit demand levels will be difficult to hit for Tesla and is a dynamic currently being factored by the Street into the name.”
The Bottom Line on Tesla Stock
Near-term, avoid shares of Tesla. The sell-off here may have only just begun as sales estimates become difficult to reach in 2020. Until we see clear signs COVID-19 threats are behind us, sales may not pick up necessary momentum. From here, I believe Tesla could fall to $415 support, worst-case scenario.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
