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Tesla Facing $275 Billion Market Cap Loss As Bond Yields Surge; Shares at 3-Month Low

Tesla shares have fallen more than 30% from the intra-day high it reached on January 25, thanks in part to rising bond yields, a big bet on bitcoin and increasing competition in the clean-energy car market.

Tesla Inc.  (TSLA) - Get Tesla Inc. Report shares traded lower again Friday, extending a move that has loped nearly $275 billion in value from the clean energy carmaker triggered by rising interest rates and the ongoing correction in bitcoin.

Tesla shares have fallen nearly 30% since the stock closed at a record high of $883.09 on January 26, just one day before benchmark 10-year Treasury note yields began their 65 basis point surge amid accelerating inflation forecasts and improving economic growth prospects.

Tech stocks, particularly those with earnings that are predicted to come further down the line, are notably sensitive to interest rate increases, as investor arithmetic assigns a lower 'today' value for dollars earned in the future. 

Tesla, which has only recorded one profitable year since its inception in 2011, is expected to grow its earnings consistently over the next few years as deliveries accelerate and production ramps up in new facilities in Texas and Germany, making its 'today' value more dependent on interest rate moves than companies which are currently in the black. 

Tesla shares were marked 11.33% lower in late-morning trading Friday to change hands at $551.00 each, the lowest since December 2 and a move that would peg its market value at just over $560 billion. At its peak in early January, Tesla was trading with a market cap of around $834 billion. 

ARK Innovation ETF  (ARKK) - Get ARK Innovation ETF Report shares, meanwhile, have gone negative for the year partly as a result of Tesla's weakness. Cathie Wood, one of last year's standout fund managers and the head of the $60 billion stable of funds, has been a long-time proponent of both Tesla and Bitcoin, two of her fund's key assets.

Which linked to a second vulnerability in Tesla shares that could be linked to its recent purchase of $1.5 billion worth of bitcoin, must be held as a so-called 'intangible' asset on its corporate balance sheet. 

That means that, like the value of "goodwill", it can't be increased, but it can be marked down when bitcoin prices decline, leaving Tesla's stock price at least partly-linked to bitcoin fluctuations.

Bitcoin prices have fallen nearly 20% since reaching an all-time high of $58,000 on February 21, partly as a result of rising bond yields that make U.S. dollar holdings more attractive 

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Short-selling interest in Tesla remains robust, as well, at $32.16 billion -- or 6.4% of the outstanding float in play. Tesla shorts are up $1.18 billion since last week, according to data from S3 Partners.

Betting against Tesla this year, in fact, has netted short-sellers around $4.28 billion in mark-to-market profits, including $1.94 billion from yesterday's near 5% decline. 

Car market fundamentals aren't working in Tesla's favor, either: earlier this week, its China-based rival, NIO NIO cautioned that electric car sales in the world's biggest market would slow over the first three months of the year following a wider-than-expected fourth quarter loss.

Tesla sold 15,484 of its China-made cars in January, the China Passenger Car Association (CPCA) said last month, down from 23,804 in December. Tesla's China sales were around a fifth of its overall total in 2020 - when it delivered a record 499,550 vehicles -- up from just 12% in 2019.

CPCA will publish February sales data on March 8. 

One investors who isn't worried about either rate pressures of market fundamentals is billionaire Ron Baron, an early Tesla bull who runs Baron Capital Management. 

Baron, who holds 1.1 million Tesla shares in his personal account, trimmed Baron Capital's exposure by around 1.7 million shares over the past six months at an average price of $666.70, but still expects the stock to rise to as high as $2,000 over the next ten years.

"When we started talking about Tesla in 2014, I said we'd make at least 20 times our money and everyone was skeptical," Baron told CNBC Thursday. "It was unlikely, in most people's opinion, that electric cars were going to dominate."

"Now, even General Motors GM is expecting to have an all-electric fleet by 2035, so it's going in that direction and Tesla is the leader," he added.