Tesla shareholders who bought shares in the last year are hurting with losses. Mainstream media will point to CEO Elon Musk’s purchase of Twitter as the catalyst for the drop. However, Musk points to the Fed’s interest rate hike as the reason.
Musk’s complaint is justified. The Fed raised rates to slow the economy. It had to. Inflation increased by a double-digit percentage. The official inflation rate highs of 2022 are potentially under-reported.
Inflation cuts into disposable income. This decreases the affordability of electric vehicles. To offset weaker demand, Tesla cut prices of its Model Y and Model 3 in China for the second time. The company needed to grow its market share in the country. In addition, it reduced prices in Japan, South Korea, and Australia.
Weak demand in all of those regions is a major headwind for Tesla stock. Chances are high that Tesla shares will re-test its 2020 break-out price of $50.00.
People refer to Tesla’s valuation as greater than that of automakers combined as overvaluation. However, automakers will suffer with lower sales just the same. Consumers cancel plans to buy cars during a recession. They will reallocate their budget for necessities. Automakers will have to cut prices or offer generous incentives once again to boost demand.
