Tesla Inc shares are set to wipe out nearly one-fifth of their value in less than two weeks, amid growing concerns that demand for electric cars is starting to weaken. 

The sell-off started earlier this month when the electric-vehicle (EV) giant dialled back growth expectations during its third-quarter earnings call. That was followed by grim commentary from several global automakers, as well as Wall Street analysts. This week, battery-maker Panasonic Holdings Corp and chipmaker ON Semiconductor Corp also sounded alarms for the EV industry.

The warnings have weighed on stocks across the US automotive sector, which has also been battling extensive negotiations with its labour unions over wages. Still, Tesla’s decline stands out: shares have sunk around 20% since the Oct 18 report, compared with a 3.6% drop in the S&P 500 Index, and a more than 4% decline in the Nasdaq 100. The retreat in the EV maker’s stock price has erased about US$145 billion from the company’s market capitalisation.

“At the crux of the problem is a capital-intensive sector investing in unproven EV strategies amid a world of rising costs, lower prices, rising rates and slower demand,” Morgan Stanley analyst Adam Jonas wrote in a note discussing the wider industry weakness on Tuesday. “What investors seem to be waking up to today is the idea that the tens of billions of dollars invested in EVs may be value-destructive rather than value-accretive.”

The outlook for autos overall has been darkening as high interest rates have sent the cost to own a car soaring. When coupled with rising inflation, consumers’ ability to afford big purchases has been squeezed. EVs, still a relatively new technology with an underdeveloped charging ecosystem, are getting hit first. 

As a pure-play EV maker with an eye-watering valuation, the stakes are high for Tesla. While some part of its expensive share price reflects its potential to develop self-driving cars, a large part depends on the company’s ability to maintain its current dominant position in the EV industry and its profit margins.  

As EV demand tapers and Tesla’s aggressive price cuts seem to be losing their ability to boost demand much further, investors are starting to get jittery, reflected in the sharp slide in the share price.

  - Bloomberg