Tesla Stock Plunge: Is TSLA Heading for a Complete Reversal of Its 2023 Gains?

Stock Market

I always get nervous when Tesla (NASDAQ:TSLA) stock falls because it’s such a big component of Elon Musk’s wealth. And given I have such a large following on X, I certainly don’t want to see risks to the platform I have the most reach on. Objectively though, it seems possible that Tesla could roundtrip all the gains it’s made since the 2023 low.

What will it take to turn the price around?

Hopes are pinned on ventures like self-driving technology, robotics, and artificial intelligence. But the lingering question remains: Can innovations and advancements in the electric vehicle sector power through the storm, or is Wall Street’s romance with Tesla’s stock over, just as it seems to be for other prior darlings like Apple (NASDAQ:AAPL)?

The Problem With TSLA Stock Right Now

The fundamental problem is fundamentals. Demand for electric vehicles is slowing markedly. China was a big driver of demand for Tesla vehicles, but now the country is ramping up its own competitors. As a result, Tesla is pulling back on production there. Given that China is such a large market, and that Tesla faces problems at home in the U.S. to, weakness in demand from China can have a disproportionate impact on earnings.

Big sell-side analysts are making note of this as well. For example, Morgan Stanley revised its 2024 earnings projection for Tesla, suggesting the company could “potentially” face losses, with an EPS projection dropping from $2.04 to $1.51. Gross profit margins look to be declining to 11.4% from 17.6%. And Q1 2024 delivery estimates continue to fall.

The absence of clear sales guidance for 2024, coupled with a projected slowdown in vehicle shipment growth to about 20%, isn’t helping. Despite delivering 1.8 million cars in 2023 and starting Cybertruck production, Tesla’s aggressive price strategy and its impact on value and profitability remain key concerns.

One can argue that none of this is unexpected. There are tons more players now in the EV space than ever before. A slew of competitors, including established automakers like Toyota (NYSE:TM) and rising stars such as BYD (OTCMKTS:BYDDY), Xpeng (NYSE:XPEV), Nio (NYSE:NIO), Polestar (NASDAQ:PSNY), and Li Auto (NASDAQ:LI), are aggressively expanding their market presence.

These competitors are not only increasing their global footprint but are also planning to introduce highly competitive models priced around $25,000 in 2024. This strategy could significantly erode Tesla’s market share and pressurize its pricing and profitability margins.

The Bottom Line

Tesla could end up being a value trap here. While the stock’s recent decline could be an attractive entry point for long-term investors, I’m not so sure. The juxtaposition of Tesla’s valuation against its growth prospects and competitive challenges is hard to think through, particularly when it comes to China as the wildcard.

The implications of Tesla’s recent stock performance extend beyond its immediate financial metrics, touching upon broader themes of market competition, investor expectations, and the evolving landscape of the electric vehicle industry. It’s a tough spot here. So, could Tesla ultimately unravel all its gains in 2023? Maybe not. But the fundamentals are starting to be more and more concerning.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing.

Michael A. Gayed is the Publisher of The Lead-Lag Report, and Portfolio Manager at Tidal Financial Group, an investment management company specializing in ETF-focused research, investment strategies and services designed for financial advisors, RIAs, family offices and investment managers.

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