The opening quarter of 2024 has come to a close, revealing that Tesla (NASDAQ: TSLA) took the unfortunate title of being the worst-performing stock within the Nasdaq-100.
This behemoth of the electric vehicle (EV) realm saw its stock value plummet by 29.3% during the period. A narrow margin relegated it just below Sirius XM Holdings (down 29.1%), marking a challenging quarter amidst other Nasdaq-100 underperformers like Lululemon Athletica, Charter Communications, and Warner Bros. Discovery.
The big question now looms: is this a golden buying moment enticing investors, or should they consider cutting their losses?
Unveiling Tesla’s Challenges
Tesla continues to hit headlines for all the wrong reasons, with a significant roadblock being the tepid demand for EVs that falls short of initial projections.
Various factors contribute to this scenario:
- Elevated interest rates and prices
- Lagging EV infrastructure such as charging stations
- Delays in manufacturing
- Confusion and uncertainty around tax credits
- An insufficiency in consumer acceptance
In essence, EV sales have stagnated at approximately 9% of total new vehicle sales, whereas industry forecasts envisioned a more substantial surge by now. Although the EV market is likely to witness double-digit growth as the auto industry continues its shift away from gas-powered vehicles, this gradual pace is hitting hard at all EV manufacturers, with Tesla taking a significant blow.
Tesla’s trajectory towards its ambitious target has become uncertain. Recently released delivery figures by the company painted a grim picture, showing a 9% year-over-year decline. Moreover, Tesla’s CEO, Elon Musk, hinted during January’s earnings call that the vehicle volume growth rate might notably slow, citing the team’s focus on the next-generation vehicle launch at Gigafactory Texas.
The company is grappling with a string of other predicaments as well:
- Intensifying competition in the crucial Chinese market
- Supply chain disruptions owing to Red Sea turmoil
- Production halts due to vandalism outside the German factory
- Musk’s involvement in Twitter, now X, which has alienated potential car buyers
In essence, Tesla is confronting both macro hurdles (a sluggish EV market) and micro setbacks (decelerating production growth and mounting competition).
Evaluating Tesla’s Appeal with a Low Valuation
Despite its challenges, Tesla boasts numerous strengths. The company excels in EV production and sales, an area where many falter — and manage to turn a profit in the process.
While fellow EV manufacturers like Rivian have grappled with profitability, Tesla, in contrast, amassed $15 billion in net income over the past year, showcasing robust profit margins within the industry.
Consequently, the stock’s price-to-earnings (P/E) ratio continues to dwindle, presently standing at 40. This represents one of Tesla’s lowest valuations since its nadir of 30 in January 2023.
A timely reminder: Tesla’s stock soared over 100% in the calendar year 2023, leaping from below $120 per share to above $240.
Is Tesla a Compelling Investment Now?
Alongside its alluring valuation, Tesla possesses a few aces up its sleeve. Recently, Elon Musk announced the impending debut of the much-anticipated robotaxi on August 8. While the specifics surrounding the robotaxi are yet to unfold, it could well act as a vital stimulant for the stock, given the centrality of self-driving technology to Tesla’s narrative.
Therefore, for steadfast investors who have faith in both the EV revolution and Tesla’s capability to execute full self-driving technology, the current downturn in 2024 could present a prime buying occasion for the long haul.