Tesla Inc CEO Elon Musk attends the World Artificial Intelligence Conference (WAIC) in Shanghai, China on August 29, 2019.
Aly Song | Reuters
Tesla shares jumped nearly 8% on Wednesday after hitting a 52-week low the day before. The rally followed an upgrade from Citi analysts and a warning from Tesla’s CEO Elon Musk that South Korea is a prime candidate for a new factory the company hopes to build in Asia.
The recovery is a relief for Tesla investors, who have seen the value of their holdings drop by about half this year amid a broader market slump and a shift away from risk assets.
“We believe the year-over-year pullback has offset short-term risk/reward,” Citi analysts wrote, increase their rating on the stock to neutral. “To become bullish from here, we’d like to gain more confidence in the auto average selling price/gross margin bridge (including tracking short-term data points in China and Europe) and FSD progress.”
FSD refers to what the company calls its full self-driving capability. Tesla sells driver assistance systems, including the standard Autopilot, installed in all its new cars, and the premium FSD option. In the US, Tesla’s FSD currently costs $12,000 up front or $199 per month on a subscription basis. The company doesn’t say what percentage of users choose this option, or how many end their subscriptions.
Musk has been promising Tesla investors and customers since 2016 that his company would be able to turn its cars into self-driving vehicles capable of operating like a robot. However, it is still to be delivered. Drivers using the Tesla Autopilot, Enhanced Autopilot, FSD and FSD Beta systems should remain alert to the road, hands on the wheel, ready to take over the driving task at all times.
In addition to the Citi note, Musk spoke with South Korean President Yoon Suk-yeol on Wednesday and expressed optimism that a new Tesla factory will eventually open in the Asian country.
The widespread selloff that preceded Wednesday’s rally came as Musk’s attention largely turned to Twitter, which he bought for $44 billion last month.
Some of the declines in Tesla stock followed a massive selloff of shares by Musk, which he is liquidating in part to finance the Twitter deal. Earlier this month, Musk sold another $3.95 billion in Tesla stock and told Twitter employees he was doing so to save the social media company.
Musk quickly implemented mass layoffs, firing executives and improving the platform’s critical features. In response, many advertisers have suspended spending on Twitter campaigns indefinitely and civil rights activists they called for more boycotts until Musk’s team can prove it can handle hate speech and other harmful content on Twitter.
Some Tesla analysts and investors are concerned about a possible spillover into the electric car company. Adam Jonas, an analyst at Morgan Stanley, wrote in a note Wednesday that the Twitter situation could hurt consumer demand for Tesla, as well as trade deals, government relations and “capital markets support.” The firm still recommends buying Tesla shares and has a target price of $330.
Shares were trading near $183 late Wednesday afternoon.
Leo Koguan, one of the company largest individual shareholdersand other investors have requested a massive buyback of Tesla shares. In a petition shared on Change.org, Tesla bull and influencer Alexandra Merz said a quick buyback would allow Tesla to “take advantage of the currently very undervalued share price” and “act before the 1% tax on share buybacks is due on January 1st.” , 2023.”
Musk said he is willing to do a buyback at Tesla, pending board approval. Last month, on the company’s third-quarter earnings call, Musk said Tesla would likely do a “meaningful buyback” in the next year, potentially between $5 billion and $10 billion.
WATCHES: Tesla upgraded by Citi