One stock in the ‘magnificent seven’ isn’t so magnificent

The electric-vehicle maker has been the laggard among the group of big technology stocks that powered markets higher last year. Microsoft, Meta Platforms and Nvidia have kept climbing to new highs, riding the mania around artificial intelligence and powering the broader market to repeated records as well.

Tesla’s stock, on the other hand, has fallen more than 25% in the past four weeks to its lowest level since May. The shares were dealt another blow late Wednesday after the company reported earnings and revenue that badly missed expectations. The stock declined more than 12% on Thursday, its worst one-day drop in more than a year.

The other Magnificent stocks—Google parent Alphabet, Amazon.com, Apple, Meta, Microsoft and Nvidia—have gained an average of 9.4% in January. Tesla is the only one in the red.

Tesla’s executives warned on its earnings call that growth is likely to slow in 2024 more than it did last year, without specifying a target. Elon Musk said the company will begin producing a new low-cost vehicle model toward the end of 2025.

Even some of the company’s most ardent bulls were aghast at the financial miss. Wedbush Securities analyst Dan Ives, an outspoken Tesla proponent, described the post-earnings conference call as a “train wreck” in a note to clients, adding that he was “dead wrong” about his optimistic expectations for the company’s earnings.

The swoon in the shares triggered a frenzy of activity in the market for stock options, a favorite way for traders to play Tesla’s wild swings. Tesla options made up about 11% of all activity in the U.S. options market, according to Tom Keen, an options trader at Piper Sandler. Trading in Tesla surpassed activity in Invesco QQQ Trust, a popular exchange-traded fund that seeks to track the Nasdaq-100 Index.

He said many investors appeared to be positioning for a continued slide in the shares, picking up put options that would pay out if the stock kept falling.

By another measure, fewer investors are betting against the stock than in recent years. About 2.91% of available shares were sold short as of Jan. 12, according to FactSet; that figure topped 30% as recently as 2019.

For years, Tesla shares soared along with demand for electric cars. The status of the automaker as a dominant player in a market with huge growth potential led investors to bless the stock with a rich valuation on par with leading technology companies. Tesla trades at 42 times its earnings over the past 12 months, according to FactSet, while Microsoft trades at 39 times. Ford Motor and General Motors carry multiples of 7.5 and 4.9, respectively.

Rival automakers such as Hyundai Motor and its affiliate Kia have emerged as competitors in the U.S. electric-car market, and analysts say Tesla’s reputation as a tech leader is now working against the stock.

Tesla’s results and guidance “show it’s nothing more than a struggling car company,” analysts at GLJ Research said Thursday in a note to clients.

Tesla remains a contentious stock among traders and analysts on Wall Street. Of 49 Wall Street analysts covering the stock, 19 rate the shares a buy, while the remainder maintain a neutral or negative rating. The average price target is $236.51, or about 30% above Thursday’s closing price of $182.63, according to analyst forecasts compiled by FactSet.

Shares of other electric-vehicle makers fell Thursday. Rivian Automotive dropped 2.2%, while Lucid Group shed 5.7%.