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Why Tesla Stock Fell Sharply Thursday

By Daniel Sparks – Jul 16, 2020 at 10:37AM

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Following a huge run-up, the electric-car maker's stock is taking a breather.

What happened

Shares of Tesla (TSLA 3.94%) 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.

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.

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