Tesla Retail Investors Unfazed by 34% Share Drop, 5% Jump

Tesla's retail investors remain steadfast in their support for the electric carmaker, despite a significant 34% drop in share price from its record high. This resilience comes amidst a backdrop of political backlash and declining sales, with the company's second-quarter sales falling nearly 14% and missing analyst predictions.

Political tensions have escalated, with the return of Donald Trump to the White House and his public feud with Elon Musk. However, this has not deterred retail investors like Nick Dolya, a 48-year-old from Winter Park, Florida, who owns $500,000 in Tesla stock and continues to add to his holdings. Dolya, who drives a Model Y along with his wife and daughter, believes in the safety and superior experience of Tesla vehicles, comparing them to the iPhone's impact a decade ago.

Dolya's conviction extends to his personal network, having persuaded 20 people to buy a Model Y. He envisions a future where half the cars on the road could be Model Y vehicles. Despite the political heat and declining approval ratings for Musk, Dolya and thousands of other retail investors remain unfazed.

Tesla shares experienced a 5% jump on Wednesday, just hours after a disappointing sales report. This recovery was driven by individual traders, with Interactive Brokers logging 236,826 buy orders for Tesla, significantly outpacing the number of shares sold. Retail traders also invested in a fund offering double the exposure to Tesla’s price moves, indicating their willingness to amplify their positions.

In contrast, Wall Street analysts remain cautious. Tesla's stock trades at 132 times its trailing 12-month earnings, far above its 10-year average and the S&P 500 average of 22.2 times earnings. Analysts warn that such a valuation multiple is unsustainable. Garrett Nelson, senior equity analyst at CFRA Research, values Tesla at $258 per share, 18% below its current price, and maintains a "hold" rating with a 12-month target of $320. Across 54 analysts tracked by FactSet, the average target is $311.12, suggesting that while retail investors believe they are buying early, analysts see them as overpaying.

Tesla enjoys more retail support than other top US tech companies, with a higher percentage of "other" investors, a category excluding big institutions and insiders. These investors, using trading apps and betting on TSLA, have weathered every drop and spike in the stock's price. Their belief in Tesla extends beyond stock ownership, as Elon Musk has leveraged the inflated share price to raise billions for his other ventures, many of which are not yet profitable.