The pullback in Tesla has more to it than Elon Musk’s stock sale

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Tesla Inc (NASDAQ: TSLA) has slid nearly 20% in the stock market in less than a month, and CFRA’s Garrett Nelson says it is only partially related to CEO Elon Musk and his sale of billions of dollars worth of stock to cover tax bills.

Nelson’s remarks on CNBC’s ‘The Exchange’

On CNBC’s “The Exchange”, Nelson agreed the stock sale turned off investors since Musk was the largest shareholder of the company but said there were other factors at play as well.

There’s increasing competition from the likes of Rivian, Lucid, and traditional automakers dramatically increasing investments in electric vehicles. And then there’s other factors such as the ongoing chip shortage and supply constraints which we see lingering well into 2022.

Also on Tuesday, the world’s 2nd largest automaker, Toyota Motor Corp said it will invest $35 billion to launch 30 new EVs by the end of the decade.

Nelson sees another 8.0% downside in TSLA

Nelson rates Tesla at “hold” with a price target of $875 that represents another 8.0% downside from here. To him, the sell-off makes sense as the stock was “overextended to the upside”.

The valuation, in our view, is still hard to justify. It’s still trading north of 100 times our 2023 earnings estimate. So, that’s still a multiple that makes us cautious. But we do think the valuation is becoming more interesting following this sell-off.

According to Nelson, Tesla does have a “competitive advantage” but the Lucid Air that comes with specifications similar or better than a Tesla could be a threat to the Texas-based electric vehicles manufacturer. A day earlier, Time magazine named Elon Musk its “Person of the Year”.

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