Tesla Stock Is Down More Than 20% From Its High. How Low Can Shares Go?

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Shares of electric-vehicle leader Tesla are down more than 20% from their November 52-week high.


WANG ZHAO/AFP/Getty Images

Shares of electric-vehicle leader

Tesla

crossed into bear-market territory today. That statement is technically true, but also a little tiring. Stocks, individually, don’t have bear or bull markets. That terms should be reserved for, well, the overall market. Still, the big dip in a mega-cap stock is noteworthy leaving investors wondering what might come next.

Tesla (ticker: TSLA) stock closed down 5% at $966.41. The


S&P 500 index

and


Dow Jones Industrial Average

both closed down 0.9%.

The Monday dip sent the company’s market cap below $1 trillion based on the number of shares outstanding, excluding management stock options. Shares are down 21% from the Nov. 4 closing high of $1,229.91. Shares are down 22% from the intraday high of $1,243.49.

Whether or not bear markets should be measured from a closing high or an intraday high is the source of debate on Wall Street. But again, the debate doesn’t really matter in this instance because individual stocks don’t have bull and bear markets.

Whether it’s a bear market or not isn’t the point for individual investors. The pain of a 20% drop is real.

One of the last times Tesla stock closed in bear-market territory was February 2021. (Yes, Barron’s wrote about the single stock bear market then, too.) Back then, interest rates were rising and highly valued tech stocks took it on the chin. Higher rates hurt the valuation of shares of faster-growing companies more than those of slow-growing mature companies—that’s just the way the math of higher interest rates works out.

Back then it took about six months for the stock to retake its old highs. If that were to happen again, bullish investors would be waiting until June 2022 to see Tesla stock hit $1,300.

That would be a long wait for bulls, and while there is no way to know if that scenario will even unfold, there is a lot going on that could move the stock in the coming couple of months. Bullish and bearish Tesla investors will be watching for the startup of two new plants in Germany and Texas, the impact of those new plants on profit margins, the start of deliveries of the Tesla Cybertruck and the overall growth of EVs in the U.S., Europe, and China.

With all that coming, it raising the question of why the shares are struggling.

Two things might be at work. First, CEO Elon Musk is still selling stock. It creates an overhang. Some bulls might wait to buy until the large sales are over. Musk has at least 5 million or 6 million shares left to sell associated with his expiring stock options. He will probably be done selling by the end of 2021, but he might just Tweet out when he’s done. At current pace, we figure by year-end.

Second, there is the issue of Musk being named Time’s Person of the Year.

Amazon.com

(AMZN) founder Jeff Bezos won that distinction in 1999, near a multiyear peak in that stock. Amazon shares went on to slide, and some investors think Tesla stock could do the same.

The Amazon comparison with Tesla doesn’t quite match up, however. The two companies are at very different stages of development when their top executives won Time’s distinction. Amazon had a market capitalization of $27 billion back then. Tesla’s market cap is now hovering around $1 trillion.

Still, it’s a belief, and traders do odd things from time to time, justified or not. When stocks move upward, or downward, momentum traders will jump on the trend for whatever reason.

Write to Al Root at allen.root@dowjones.com

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