How Bitcoin, Demand Are Driving Tesla Shares Lower

Tesla Inc TSLA has been on a downtrend in recent sessions, and an analyst at Wedbush is tracing the weakness back to the automaker's Bitcoin BTC/USD holdings and demand for its vehicles. 

The Tesla Analyst: Daniel Ives has a Neutral rating and $950 price target on Tesla shares, with a bull case price target at $1,250.

Why Bitcoin Could Overshadow EV Growth Story: One of the two core reasons for Tesla's sell-off is related to Bitcoin, Ives said.

The company's $1.5-billion purchase of Bitcoin last month has tied the stock heavily to the digital currency, the analyst said.

Tesla may have made roughly $1 billion from its Bitcoin purchase, with the amount exceeding all of its EV profits for 2020, he said. Yet the recent 48 hour sell-off in Bitcoin has prompted some investors to liquidate their holdings in the near-term, Ives said. 

"Tesla is an EV play entering the golden age of EVs and there is a lingering worry that the Bitcoin sideshow could overshadow the overall EV growth story playing out for Tesla in 2021 and beyond in the eyes of the Street."

Related Link: Tesla Analyst Sees Conciliatory Approach To Chinese Regulators, EV 'Golden Age' Ahead

Demand Concerns For Tesla: Tesla's decision to stop sales of its lowest-priced Model Y along with a string of price cuts have stirred demand concerns, Ives said.

The aforementioned Model Y version was never a needle mover for Tesla, the analyst said, adding that continued price cuts have been part of Tesla's overall strategy over the last year.

Ives also said he is not overly concerned about competition, as he said the EV market is valued at $5 trillion in the next 10 years and will have many winners around the globe.

"The EV space is in the early days of playing out however weaving Bitcoin into the mix, Tesla shares now have added volatility and noise driving the emotional bull/bear debate around the name," the analyst said. 

EV unit sales in the March and June quarters will drive Tesla shares upward, but they could be in for more volatility in the near term, he said. 

TSLA Price Action: At last check, Tesla shares were down 5.33% to $676.40, having shed over 20% from an all-time high of $900.40 reached Jan. 25.

Photo courtesy of Tesla.