TLDR
- Tesla stock slid 3.8% to $406.01 Wednesday despite fourth quarter earnings of $0.50 per share beating analyst forecasts of $0.45
- Revenue reached $24.90 billion, exceeding Wall Street estimates of $24.75 billion, but valuation concerns dominated investor thinking
- The stock’s P/E ratio near 400 triggered selling pressure as analysts warned the multiple leaves little room for error
- January China wholesale sales jumped 9% year-over-year while the company committed $2 billion to xAI for AI technology development
- Cathie Wood bought $15 million in shares through ARK ETFs as insiders offloaded $53.5 million worth of stock over 90 days
Tesla shares dropped 3.8% Wednesday, closing at $406.01, as investors worried about valuation despite solid quarterly results. Trading volume climbed 15% above average to 73.5 million shares.
The automaker delivered fourth quarter earnings per share of $0.50, topping the $0.45 consensus estimate. Revenue hit $24.90 billion versus expectations of $24.75 billion.
Those numbers would typically support a stock rally. Instead, Tesla’s stretched valuation took center stage.
The price-to-earnings ratio hovering near 400 has investors on edge. At that level, any miss or disappointment could spark aggressive selling.
Fresh analyst downgrades added pressure throughout the session. Some firms lowered price targets while questioning whether current multiples make sense.
Analyst Ratings Paint Mixed Picture
Wall Street analysts issued a “Hold” rating on average with a consensus price target of $403.92. That target barely clears Wednesday’s closing price.
Morgan Stanley pegged Tesla at $415 with an “equal weight” rating. Royal Bank of Canada stayed bullish with a $500 target and “outperform” rating.
Melius Research went higher at $520 with a “buy” recommendation. But other firms expressed caution about near-term catalysts.
The split reflects uncertainty about execution in 2026. Competition intensified as Waymo secured major funding for robotaxi expansion.
That development threatens Tesla’s autonomous driving narrative. The technology race could determine whether the premium valuation holds.
China Growth and xAI Investment Offer Support
Positive data emerged from China where wholesale sales rose 9% year-over-year in January. Growth in Tesla’s biggest market provides a revenue cushion.
The company announced a $2 billion xAI investment to accelerate artificial intelligence development. The move connects Tesla’s vehicle technology with advanced AI systems.
Supporters see the xAI deal as validation of the autonomous driving roadmap. Integration between the companies could unlock new capabilities.
Cathie Wood’s ARK Invest stepped in as a buyer Wednesday. The firm purchased 35,766 shares worth roughly $15.09 million through its Space Exploration ETF.
Wood has consistently bought Tesla during price declines. Her strategy focuses on long-term growth rather than short-term volatility.
Company insiders moved in the opposite direction. Directors and executives sold $53.5 million worth of stock over the past three months.
James Murdoch sold 60,000 shares in early January for $26.7 million. Kimbal Musk sold 56,820 shares in December for $25.6 million.
Insiders currently own 19.90% of outstanding shares. Institutional investors hold 66.20% with Vanguard Group adding 6.5 million shares in Q4.
Tesla’s balance sheet remains solid with a 0.08 debt-to-equity ratio. The current ratio of 2.16 and quick ratio of 1.77 show strong liquidity.
Return on equity came in at 4.86% with a 4.00% net margin. Fourth quarter revenue fell 3.1% compared to the year-ago period.
Wall Street expects Tesla to post $2.56 in earnings per share for the full fiscal year.
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