Tesla (NASDAQ: TSLA) once reigned supreme as the foremost electric vehicle (EV) company globally, surpassing all in sales until the closing quarter of 2023, when China’s BYD ascended to the throne. The company now finds itself embroiled in a quagmire of fierce competition and mounting difficulties.
As 2024 unfolds, Tesla stock has plummeted by 33%, continuing a downward trajectory that commenced in late 2021 and currently rests 59% below its peak value. With some analysts questioning the company’s place among the revered “Magnificent Seven,” investors are left pondering: should they divest their Tesla holdings?
Tesla’s Demand Dilemma
For years, Tesla grappled with a substantial backlog of orders, unable to manufacture EVs swiftly enough to meet demand. Despite inaugurating two new gigafactories in Berlin and Texas within the last pair of years, thus expanding its global count to five, Tesla faces a fresh challenge: dwindling demand.
In Q1, Tesla’s delivery figures plummeted to 386,810 vehicles, marking an 8.5% decline from the same period the prior year and significantly below Wall Street’s consensus estimate of 457,000. The company encountered supply chain hurdles during the quarter due to shipping interruptions in the Red Sea and a temporary shutdown of its Berlin gigafactory following an electricity-supply-disrupting fire.
The concerning aspect is that these challenges had likely been factored into the market’s expectations, hinting at underlying issues yet to be unveiled by the company. Analyst Charlie Bilello’s observations on CarGurus indicate a drastic plunge in the average price of used Teslas, a glaring red flag suggesting a potential waning of consumer interest in the brand.
Complex Challenges, Unpromising Prospects
In 2023, Tesla slashed vehicle prices by 25.1% in a bid to stimulate demand but fell short of meeting CEO Elon Musk’s ambitious 50% delivery growth goal. The consequent impact on the bottom line was stark, with earnings per share witnessing a 23% annual decline.
Recent data indicates a slight uptick in prices in February, potentially contributing to the recent decline in sales. Tesla now faces the grim choice between prioritizing delivery growth at the expense of profitability or scaling down sales at higher margins – a challenging dilemma with no clear solution.
Musk’s unveiling of plans for a mass-market EV slated for 2025, boasting an enticing $25,000 price tag to lure budget-conscious consumers, may inject fresh momentum. However, this transformative venture remains distant on the horizon, with uncertainties lingering regarding overall EV demand.
Notably, major automakers like Ford and General Motors have redirected billions from their EV plans to hybrid and internal combustion engine vehicles due to concerns over EV demand, casting a shadow on the sector’s growth prospects.
Image source: Tesla.
Long-Term Promise, Current Conundrum
Despite Tesla’s primary revenue source emanating from EV sales, analysts view the company more as a tech enterprise than a conventional automaker. Investors are eyeing Tesla’s autonomous self-driving software and robotics initiatives as lucrative future prospects, heralding potential value far surpassing its current market standing.
Considered from this vantage point, Tesla is deemed overpriced, trading at a price-to-earnings (P/E) ratio of 53.3 based on 2023 earnings per share of $3.12 and a current stock price of $166.40, significantly exceeding the Nasdaq-100 index’s P/E ratio of 30.9. The implication being that Tesla stock may need to decline by 42% to $96.50 to align with tech peers – a probable signal for cautious investors.
Although Tesla holds promising cards for future growth, with innovations like autonomous technology potentially driving significant value, many of these catalysts appear years away from materializing, urging a prudent approach to investment decisions.
Conclusion
Tesla’s recent challenges, from demand woes to competitive pressures, have cast a shadow over its once-unassailable position in the EV market. While the company’s long-term prospects remain bright, with transformative innovations on the horizon, caution is warranted for investors in the face of near-term uncertainties. As Tesla navigates choppy waters ahead, strategic decision-making and a discerning eye on market dynamics will be crucial to weather the storm and position for future growth.
