Tesla’s stock has gone down 32% in 2024. It has seen a decline of more than 11% in the last month, but why is Tesla stock going downwards? The analysts at Wall Street have revised their target for Tesla and have cited concerns over exponential potential earrings downside risk.
Tesla’s stock price has faced downward pressure in recent months, prompting investor skepticism regarding the company’s capacity to achieve its targets. Notably, factors influencing the Tesla share price encompass demand and production apprehensions, alongside competitive pressures in the Chinese market. In this blog, we will discuss some of the top reasons why Tesla’s stock is going downwards.
Where Are Tesla’s Stock Heading?
Where Tesla’s stock has seen a massive decline in the last couple of months, other companies have not seen a similar trend. The markets have seen soaring success of other tech-focused entities like Nvidia (NVDA) and Microsoft (MSFT). However, investors grapple with a pivotal question: Does this downtrend present a lucrative buying opportunity, or do the myriad challenges confronting the electric vehicle (EV) pioneer signal cause for apprehension?
Tesla’s current hurdles include incidents like a suspected arson attack at its European Gigafactory and intensifying competition within the EV sector, factors that collectively compound concerns about the company’s trajectory and future prospects, but more on that later.
Here are some of the most important developments in recent weeks.
1. Financial Performance and Projections
Tesla’s EBITDA margin witnessed a decline from 23.55% in 2022 to 17.19% in 2023. This is attributed to various challenges, including macroeconomic factors. Analysts anticipate a further reduction to 15.73% in 2024, with prospects of gradual recovery in subsequent years.
Market consensus on Tesla’s price targets exhibits wide variation, with an average suggesting an 18% upside. Notably, the most optimistic projection is around $320 and the lowest is around $23. This is underscoring substantial uncertainty surrounding Tesla’s future performance.
2. Stock Performance and Analyst Ratings
Following a downgrade by Wells Fargo analysts to a sell rating, Tesla’s stock plummeted by 4.5% to below $170. This downgrade came with a price target of $120, suggesting a 30% decline, as Wells Fargo dubbed Tesla a “growth company with no growth.”
Consequently, Elon Musk’s net worth took a hit, declining by $4 billion to $192 billion, causing him to lose his title as the U.S. richest man. This significant decline underscores the impact of analyst ratings on Tesla’s stock performance and Musk’s personal wealth.
3. Tesla’s Market Performance and Comparison
In 2024, Tesla emerged as the worst-performing stock listed on the S&P 500, surpassing Boeing. The stark decline in Tesla’s stock price, amounting to a 31% year-to-date decrease, underscored its underperformance in the market. This downturn significantly impacted Elon Musk’s net worth, contributing to a substantial decrease.
Furthermore, the nullification of Musk’s record $51 billion compensation package by a judge compounded Tesla’s challenges. Considering Musk’s significant ownership stake in Tesla, this decision had notable implications for the company’s performance and Musk’s personal wealth, further highlighting the interconnectedness between Tesla’s market performance and Musk’s fortunes.
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Why is Tesla’s Stock Dropping?
Tesla’s stock is dropping because of multiple reasons which include EV market competition, reduction of Chinese sales and Tesla’s recent performance. Here are the top 5 reasons for this decline.
1. Supply Chain Disruptions
Tesla has encountered significant hurdles within its supply chain, notably stemming from the global chip shortage. This scarcity has impeded Tesla’s ability to acquire an adequate supply of chips essential for its production targets, resulting in delays and customer dissatisfaction. Furthermore, logistical disruptions, including port congestion and complications arising from global events like the war in Ukraine, have added layers of complexity to Tesla’s supply chain operations.
Moreover, the rising costs of crucial battery metals such as lithium and cobalt have further exacerbated the situation. These escalating input costs have directly impacted Tesla’s profit margins and overall profitability, creating additional challenges for the company to navigate.
These disruptions have made the transportation of vehicles and parts increasingly arduous and costly, further straining Tesla’s ability to meet demand efficiently. Collectively, these supply chain challenges have underscored the fragility of Tesla’s operational infrastructure and highlighted the need for proactive measures to mitigate future risks and uncertainties.
2. Increased Competition in the EV Market
Increased competition in the EV market is another issue for Tesla’s stock plummeting. The landscape of the electric vehicle (EV) market is undergoing a transformative shift, as both traditional automakers and new startups vie for a slice of the burgeoning industry. Established car manufacturers such as Ford, General Motors, and Volkswagen have made substantial investments in EV technology, signaling a concerted effort to pivot towards sustainable transportation.
This strategic move poses a formidable challenge to Tesla’s longstanding dominance in the market. Simultaneously, well-funded EV startups like Rivian and Lucid Motors are emerging as formidable contenders, leveraging innovative designs and cutting-edge technology to compete directly with Tesla’s offerings.
The influx of new players has sparked intensified competition, leading to the possibility of price wars as companies vie for market share. Such a scenario could potentially erode Tesla’s profit margins, compelling the company to navigate a rapidly evolving landscape fraught with competitive pressures and market dynamics.
3. Regulatory Concerns
Tesla grapples with a spectrum of regulatory concerns that cast shadows of uncertainty over its operations and future prospects. Safety investigations have placed Tesla’s Autopilot driver-assistance system under the regulatory microscope, triggered by a series of accidents. Any mandated safety upgrades resulting from these investigations could potentially disrupt production processes and impede Tesla’s operational efficiency.
Moreover, evolving environmental regulations surrounding emissions standards and battery recycling pose additional challenges for the company. Compliance with these changing regulations may entail increased costs, further straining Tesla’s financial resources. Compounding these challenges is the specter of heightened government oversight, fueled by Tesla’s dominant position in the electric vehicle (EV) market.
The possibility of antitrust investigations looms, raising concerns about potential regulatory scrutiny and its implications for Tesla’s market position and future trajectory. In navigating this complex regulatory landscape, Tesla faces a myriad of hurdles that necessitate strategic foresight and proactive measures to mitigate risks and ensure continued compliance.
4. Tesla’s Financial Performance
Another reason is Tesla’s financial performance. Tesla’s financial performance has come under scrutiny amid several concerning trends. Firstly, the company’s earnings growth has fallen short of analysts’ expectations, prompting a reevaluation of its valuation and subsequent declines in stock price.
Additionally, Tesla faces pressure on its profit margins due to rising costs attributed to supply chain challenges and the looming threat of price wars amidst heightened competition. These factors contribute to a less appealing investment proposition for potential investors. Furthermore, there are growing concerns regarding Tesla’s ability to sustain its historically high growth rates, especially in the increasingly crowded electric vehicle (EV) market.
As rivals intensify their presence and market share, investors are apprehensive about Tesla’s prospects for maintaining its growth trajectory. These challenges underscore the need for Tesla to adopt strategic measures to address its financial performance and reassure investors about its long-term sustainability.
5. The China Factor
Tesla grapples with significant challenges in the Chinese market, posing a threat to its sales and growth prospects. Firstly, there has been a noticeable decline in electric vehicle demand in China, directly impacting Tesla’s sales performance in the region. Moreover, Tesla faces stiff pricing competition from formidable rivals like BYD (SZ:002594), exacerbating the situation further.
The repercussions of these challenges are evident in Tesla’s sales figures, with February witnessing a substantial decline as the company sold 60,365 China-made vehicles, marking a 19% decrease from the previous year and reaching the lowest sales volume since December 2022.
Analysts foresee a bleak outlook for Tesla’s performance in the Chinese market, with projections indicating flat volumes in 2024 and a subsequent decline in 2025. Concerns about disappointing deliveries and the necessity for additional price cuts further compound these challenges, impacting earnings estimates and casting shadows over Tesla’s future prospects in China.
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Should you Invest in Tesla Amid the Dropping Stocks?
Determining whether to invest in Tesla hinges on your risk tolerance. While the declining stock may offer a chance for potential investment, obstacles remain. Challenges such as supply chain disruptions, increased competition, and regulatory constraints could impede growth.
If you have confidence in Tesla’s long-range vision and its capability to surmount these hurdles, this downturn could present an appealing opportunity. Conversely, if you prioritize stability, it may be wise to wait for clarity in the electric vehicle (EV) market. Conduct thorough research and assess your investment objectives before reaching a decision.
Conclusion
Although Tesla continues to lead the electric vehicle (EV) revolution, its stock price mirrors underlying challenges. Concerns surrounding supply chain disruptions, an increasingly competitive market, and potential regulatory obstacles cloud prospects for future expansion.
Investors are reassessing Tesla’s capacity to sustain its dominant position and high valuations amid these challenges. However, Tesla’s innovation and strong brand presence remain undeniable factors. The company’s trajectory will depend on its adept navigation of these hurdles and its ability to achieve its ambitious objectives.
FAQs
Q1. Will Tesla’s stock bounce back?
In 2024, projections suggest that Tesla’s growth rate will significantly decrease, with deliveries expected to rise by only 10% to slightly below 2 million units, compared to just over 1.8 million units in 2023. Chances are that it will be a while before Tesla’s stock bounces back.
Q2. Why should I not invest in Tesla stock?
Tesla, the electric vehicle (EV) manufacturer, is poised to encounter several significant risks over the next 5-10 years. These include concerns about the affordability of Tesla vehicles despite tax incentives and potential delays in the construction of its Gigafactory (battery factory).
Q3. Is Tesla still worth investing?
The primary issue facing Tesla isn’t its deceleration but its valuation. Analysts predict earnings of $3.05 per share for 2024 and $4.16 per share for 2025.
Q4. What Are the Best Stocks to Invest in 2024?
The best stock to invest in depends on various factors, including your financial goals and risk tolerance. Two stocks worth investing include Sana Biotechnology Inc. (SANA) has seen a 146.1% increase, while Super Micro Computer Inc. (SMCI) that has surged by 204.7% is another good choice.
