SAN FRANCISCO — Tesla's stock tumbled 17% on Wednesday, hitting the brakes on a dramatic rally as a senior executive said the coronavirus outbreak in China would delay deliveries of its Model 3 cars and analysts warned of its high valuation.
With Tesla still up more than 25% since the company posted its second consecutive quarterly profit a week ago, Canaccord Genuity cut its rating on Tesla to "hold" from "buy," further shrinking the already small number of analysts who recommend buying the stock.
Tesla Vice President Tao Lin said on the Weibo social media platform that car deliveries from its new Shanghai plant would be temporarily delayed and that the company planned to restart production on Feb. 10.
"We've never seen a stock rise that much that fast with such little regard to past fundamentals or track record."
Needham analyst Rajvindra Gill, who recommends selling Tesla, warned in a report that Tesla's stock is trading at extreme price-to-earnings multiples compared to many leading technology companies.
The stock appeared to be rocketed toward $1,000 a share for a time during trading on Tuesday, before retreating to close Wednesday at $734.70. Even after Wednesday's drop, Tesla is trading at about 55 times expected 2021 net income, compared to Amazon at 49, Apple at 22 and Alphabet at 23, according to Refinitiv data.
"We've never seen a stock rise that much that fast with such little regard to past fundamentals or track record," Gill wrote.
Tesla last week said it expected a delay of up to a week and a half in the ramp-up of Model 3 production at the Shanghai plant after the Chinese government ordered it to shut the factory due to the outbreak.
The coronavirus outbreak has disrupted business across China, with the government there saying that the death toll had reached 490 as of Tuesday, up 65 from the previous day.
"Given the 3,000 per week China Model 3 production expectations in a country that remains on lockdown, we feel a reset of expectations in Q1 is likely and thus needs to be reflected in the valuation," Canaccord analyst Jed Dorsheimer wrote in a report, leaving his price target unchanged at $750 per share.
The stock was last down 17% at about $738. Wednesday's drop followed a sudden selloff in the final minutes of a rally on Tuesday that still left the stock up almost 14% in that session.
Tesla's rally of over 300% since early June has been a vindication for Musk, who has transformed a niche car maker with production problems into the global leader in electric vehicles, with U.S. and Chinese factories.
Still, many investors remain skeptical that Tesla can consistently deliver profit, cash flow and growth in the face of competition from established rivals including BMW and Volkswagen. Even many Tesla bulls question the stock's valuation following its recent, electrifying surge.
Barclays analyst Brian Johnson maintained his "underweight" rating on Tesla while raising his price target to $300 from $200.
"We continue to believe TSLA is fundamentally overvalued – but nevertheless concede that the recent price action opens up the possibility of raising capital cheaply, and hence reduces that chance of a stalled business," Johnson wrote in a client note.
Following Canaccord's downgrade, nine analysts recommend buying Tesla's stock, while 11 analysts are neutral and 15 analysts recommend selling, according to Refinitiv.
The median price target of analysts is $390.