Tesla (TSLA) stock: Why did Tesla share price fall below $200?

Tesla shares have given exponential returns to investors post the pandemic rally. In April 2020, Tesla shares were trading at around $40 per share. The price jumped to over $400 per share in November 2021 - a 10X increase in 18 months. 

However, since last year the stock has continuously been on a decline. In 2022, Tesla share price has almost halved and in the past week, Tesla's share price has fallen more than 15%. Currently, it is available below $200 per share.

Reasons why Tesla shares are falling

Lockdown in China: Tesla has upgraded its China plant, post which the company can produce 1.1 million vehicles annually - it translates to a little less than 100K vehicles per month. However, in October, the company only shipped 71,704, which means the plants are not operating at full capacity. It is mainly because of China's strict COVID-19 policies - there have been severe lockdowns that have affected productivity. The pandemic has also lowered consumer demand in China.

Twitter acquisition: Musk completed the deal to acquire Twitter for $44 billion. As per reports, it was expected that Musk will have to sell his Tesla stocks between $2 billion and $15 billion. It is crucial to note that he has already sold Tesla stocks worth $15 billion earlier in the year - $8.5 billion in April and $6.9 billion in August (one of the reasons for the fall in Tesla's share price earlier in the year). As per the latest filing, it is reported that we have sold additional 19.5 million stocks worth $3.95 billion on 4, 7, and 8 November. The latest sale brings the total value of Tesla stocks sold by Musk to nearly $20 billion since he disclosed his stake in twitter in April.

Advertising stopped on Twitter: Many companies have paused their advertising spending on Twitter as there is no clear direction where the company is heading. If sustained, it could lead to mounting losses for Musk, and to compensate for the losses, he may have to sell more Tesla shares.

What should investors do & Target Price?

The Tesla price targets show considerable variation. According to Nasdaq, the average 12-month price target for Tesla stands at $302.05, which is 50% above its current valuation. In the bull case scenario for Tesla, the 12-month forecast stands at an astonishing $730 per share. The negative analysts see Tesla shares falling to $73 within 12 months. There’s a wide variation as to the near-term future for Tesla.

Morgan Stanley and Mizuho have reiterated an Overweight rating on the stock, but lowered the price target to $330.

At present, it is difficult to say whether Tesla shares will fall more or not as Musk may have to sell more Tesla shares if he needs to raise short-term cash - it will impact the stock price in the short term.