Why Tesla stock dropped Monday morning

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Tesla (NASDAQ: TSLA) shares have started off the week on a negative note. As of 12:10 p.m. ET, the stock was off its session low, but still down 1.8%. The drop comes as the market is also continuing a downturn that started last Friday with a 1,000-plus point drop in the Dow. But there was also news out this morning that could have investors wondering if Tesla’s valuation is too high. 

So what

With a market cap of almost $900 billion and a trailing-12-month price-to-earnings (P/E) ratio above 90, investors have baked a lot growth into Tesla stock. A report from The Wall Street Journal that Honda and South Korea-based LG Energy Solution plan to build a new $4.4 billion electric vehicle (EV) battery factory in the U.S. may have investors realizing that an increased level of competition isn’t that far away for Tesla. 

Now what

The new plant will reportedly be in Ohio, where Honda has a factory in Marysville. Having batteries manufactured in the U.S. will help the automaker and its vehicles qualify for incentives included in the recently signed Inflation Reduction Act (IRA). 

Tesla has emerged as one of the big beneficiaries of that new law as a result of its production facilities in the U.S., including a joint battery production facility in Nevada with Panasonic. Some of Tesla’s vehicles will requalify for tax incentives under the IRA that had expired from previous rules due to reaching the production volume limits. 

This news adds to a growing list of commitments by auto manufacturers to build batteries in the U.S. Investors know that the EV market also looks to be growing quickly, and there is room for Tesla and others in the market. But valuation still matters, and investors may want Tesla’s business to catch up to its stock price before pushing shares higher.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Tesla stock dropped Monday morning appeared first on The Motley Fool Australia.

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More reading

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• Why Tesla stock dropped Monday

Howard Smith has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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