Tesla is in a pickle
You have likely seen the many recent articles about the plummeting prospects for Tesla but have been wondering exactly what is going. Here is a summary, and predictions for the future.
On 3/13/23 a report was released by Wells Fargo analyst Colin Langan indicating that the outlook for Tesla is darker than previously known. And this is on top of the already acknowledged safety issues and recalls, slowing growth and slashed prices.
a growth company with no growth
Colin Langan – Tesla report
The once hot Tesla stock is currently the worst performer in the S&P this year, down 34% so far, while other stocks have appreciated tremendously. The key is that Lagan’s report predicts that Tesla won’t grow this year and will actually shrink in 2025 as EV competition increases and pricing is forced even lower. Plus Tesla stock is currently priced as if it is and will always be a “growth company”. Once the growth is gone the stock will not just drop proportionally, but to a whole different level of a boring old car manufacturer with far lower multiples.
While the Magnificent Seven companies (that also includes Apple, Amazon, Meta, Google, Nvidia and Microsoft) saw double- or triple-digit earnings growth in the final three months of 2023, Tesla reported a 40% decline in profit from the year before. And Lagan therefore reports that Tesla stock is still very expensive relative to Tesla profit even though their stock has already dropped significantly. If Earnings Per Share (EPS) falls in line with Langan’s 2024 and 2025 earnings forecasts ($2 and $1.90, respectively), a drop to just over $100 per share may be in store just due to this one factor.
It should also be noted that the Chinese EV maker BYD has now surpassed Tesla EV vehicle sales and is still growing rapidly. Tesla sales in China for 2023 were already completely flat. And Tesla’s United States market share has dropped from 60% in October 2021 towards 50% currently. Tesla has been leading up to much slower growth for a while.
Vehicles sales for Q1 ’24 are not looking good at all. Recently the consensus projection was 479,400 vehicles, which would still be down from the previous quarter’s 484,507. But in the last few days Deutsche Bank lowered their estimate to 427,000 and UBS lowered theirs to 432,000. Other companies have also lowered their projections for Q1 and most estimates are now between 425,000 and 432,000 units, a tremendous drop.
Tesla Is Dead Money
Seeking Alpha
Future Tesla sales are at further risk due to lack of new models. The low-margin Cybertruck prospects are low and slow, and have distracted Tesla from pursuing more profitable models. And the purported Redwood project for a $25k mass market EV is not projected for until mid-2025. Plus Tesla is always hopelessly optimistic about timelines (Cybertruck was delayed 2 years).
Our company is currently between two major growth waves
Elon Musk – CEO of Tesla
Elon Musk’s claim that “Our company is currently between two major growth waves” is simply his usual hyperbole. The second wave is pure hubris. The Cybertruck is not going to provide it. A low-cost vehicle that will be delayed for years will not provide it. This means that Tesla is not between two growth faces, but instead simply a company in decline. They did quite well with their initial growth wave. But they are simply not doing what it takes to create another wave. Plus in the last few years Musk has lost all credibility with respect to projections.
There are other parts to Tesla besides EVs but their solar business is in steep decline and their AI/Full Self Driving (FSD) is being used less per vehicle. And FSD doesn’t even work well, is not at all “self driving”, and is technology wise far behind other companies such as Waymo.
Therefore Wells Fargo lowered its price target for Tesla stock dramatically, from $200 to $125. UBS has also downgraded Tesla stock.
Conclusion
Expect further significant declines in both Tesla stock price and reputation as it shifts from a growth company to a declining company. And Full Self Driving will be heard about less and less as the company is forced to focus attention on things that truly matter to the business.
