When will the divergence end?

Kim Chang-gyu
The author is the economic news editor of the JoongAng Ilbo.

Tesla shares continue to tank after some disagreement about whether they are still “magnificent.” The stock has lost about a third of its value from $248 at the beginning of the year to trade at around $172. Wells Fargo called the stock — a member of the so-called Magnificent 7 group of tech darlings — “overvalued” as the electric vehicle maker is a “growth company with no growth.” The investment bank lowered its rating to underweight from equal weight and cut its price target to $125 from $200. Another investment bank, UBS, also slashed its target from $225 to $165. Not everyone is downbeat on the EV maker. Some analysts think the shares can bounce back over the next few months and advise that now is not the best time to throw in the towel. But one thing is for sure: their take of the pulse of the high-tech company has changed from last year. Of 50 Wall Street analysts, only 18 recommended investors buy the stock. Barron’s declared that the stock could fall another 30 percent down the road given the Elon Musk risk.

Until last year, Tesla was an American dream stock for Korean mom-and-pop investors. Over a year, the stock more than doubled from $108 at the start of the year to $248. An aggressive marketing and discount policy by the EV leader stoked price competition among EV players around the world. The move helped clean out its inventory stock and bolster sales. Although the producer had to compromise its operating margin, it still remained at the top among carmakers. Shipments expanded 38 percent to 1.81 million units. Despite questionable operating results, the stock managed to stay on an upward course despite heavy volatility, all thanks to loyalty from retail investors. The so-called FOMO, or “fear of missing out,” sentiment kept investors committed to the household Wall Street stock.

The mood soured this year on gloomy prospects in the EV market. Global EV revenue that soared more than 100 percent in 2021 grew 33 percent last year and is expected to add just 19 percent this year. The pace of migration to EVs has slowed in the United States, and governments in Europe and elsewhere are ending or dialing back subsidies for EV purchases. Washington last April pledged to increase the EV share in new vehicle sales in 2032 to 67 percent as a part of efforts to reduce carbon emissions. But in the final roadmap, the share was shaved to 56 percent. Waiting demand for EVs has declined due to maturity in the early infatuation with EVs. The expensive price, insufficient charging infrastructure, and worsened consumer sentiment from high inflation and interest rates also dampened the appetite. Companies go through the stalled growth of “crossing the chasm” after early enthusiasm over novel innovation fizzles out.

Tesla has lost its appeal from multiple headwinds. Its market cap has fell out of the top 10. Korean investors have quickly turned away. The stock, which stayed at the top among Korean investors in January, fell to second place in February and now sits at seventh. The top has been claimed by Nvidia, the darling of the AI era.

Net purchase of Nvidia shares by Korean investors quadrupled those of Tesla this month. But few think EVs won’t survive the chasm. Just like MP3s gained popularity after the internet became commonplace in the 2000s, all-electric wheels just need more time. Once they cross the chasm, the type won’t be monopolized by a certain company but supplied by numerous vehicle brands. Tesla has already surrendered the No. 1 rank in EV sales to China’s BYD. Carmakers in Korea, the United States, Germany and Japan also are vying hard to make better EVs.

The tech buzzword these days is AI. Nvidia shares that had been at $112 about 17 months ago hover at $950 now. There are some worries about an AI bubble just like the dotcom bubble in the 2000s. Others claim that the AI tech leaders differ in performance and fundamentals. Winds that can blow away rooftops will eventually turn gentle. Once popularized, an innovation becomes an everyday product.