Markets

Why Tesla Stock Fell Sharply Thursday

What happened

Shares of Tesla (NASDAQ: TSLA) fell sharply on Thursday morning, declining about 5% shortly after the market opened.

The stock's slide is likely due to an analyst's move to reiterate a sell rating on shares.

Tesla Model X in a garage with its falcon wing doors open

Tesla's Model X. Image source: Tesla.

So what

Citigroup analyst Itay Michaeli boosted his 12-month price target for the growth stock by more than 80% on Thursday. This is in response to Tesla's recently reported strong second-quarter deliveries, as well as operating expenses in 2020 that may be lower than his initial estimates for the year. 

But here's the catch: The new price target sits about 70% below where shares are trading now. Michaeli gave the stock a price target of $450, up from $246 previously. But shares are sitting not far from $1,500.

There's a "lack of evidence" to substantiate the stock's nearly 500% run-up over the past 12 months, the analyst says. In particular, he questions whether demand will continue to rise rapidly in this environment, and if emerging competition may be more of a threat than investors anticipate.

Now what

Investors will likely get a timely window next week into how demand for Tesla's vehicles is faring. The automaker reports second-quarter results after market close on Wednesday, July 22.

In its quarterly updates, Tesla typically provides commentary on the trajectory of its vehicle order volume and its full-year outlook for deliveries. Both of these tidbits will help give investors a better idea of how much demand the automaker is seeing.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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