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After a strong performance in 2023, Tesla (TSLA) stock is facing challenges in 2024. The shares of this electric vehicle (EV) giant have declined by nearly 29% year-to-date. Moreover, it has lost about 40% of its value from the 52-week high of $299.29. This downturn in TSLA stock is due to softer demand for EVs, and increased competition within the sector. In response, Tesla reduced its average selling prices, which adversely impacted its profit margins and stock price.
Compounding these issues, Tesla’s leadership issued a cautious outlook for 2024, forecasting a volume decrease. This projection falls below the company’s targeted compound annual growth rate (CAGR) of 50%, mainly due to a shift towards developing new products, such as its next-generation low-cost EV. Despite the strategic rationale behind this shift, investors perceived the slowdown in volume growth unfavorably.
But perhaps what irked investors the most was the company’s lower-than-expected delivery numbers in Q1. The company delivered 386,810 vehicles in Q1, which fell short of analysts’ estimates of 425,000. Additionally, deliveries marked an 8.5% year-over-year decline, marking the first such decrease since Q2 2020. While Tesla attributed the decline to production challenges, factors such as weak demand and heightened competition also contributed to the downturn.
With Tesla now ranking among the worst-performing S&P 500 Index ($SPX) stocks, let’s analyze various factors to understand whether it can turn things around.
What's Behind the Bull Case for Tesla?
While Tesla faces multiple challenges - such as its declining stock value, softer demand for EVs, and heightened competition - it can overcome these hurdles and potentially rebound.
Despite growing competition, Tesla is a leading player in the EV space globally. Its strong brand recognition, technological advancements, and extensive manufacturing capabilities give it a competitive advantage. Furthermore, its ongoing efforts to enhance its existing products, and the expected launch of its next-generation affordable EV, indicate its adaptability to evolving market dynamics.
It’s worth noting that Tesla leverages its industry-leading profit margins to strategically cut prices and stimulate sales volumes. This strategy poses significant challenges for competitors, forcing them to reduce prices at the expense of their profitability, making it difficult for them to operate.
What stands out is that Tesla has managed to consistently decrease its cost of goods sold (COGS) per vehicle, which further strengthens its competitive positioning. Notably, the company’s COGS per vehicle in Q4 2023 came in slightly higher than $36,000, compared to about $40,000 in the previous year’s quarter.
Tesla is expanding its production capacity and is driving cost efficiencies. Moreover, it is reducing COGS per vehicle, which will bolster its profit margins and enable the company to sell vehicles at lower prices.
The EV titan is also enhancing the performance and features of its vehicles. This entails advancements in AI-driven technologies such as Full Self-Driving (FSD) and Autopilot. These initiatives position Tesla favorably to retain and defend its market share in the long term.
Beyond EVs, Tesla is poised to gain from significant growth in its energy storage deployments. Significantly, its Energy Generation and Storage division’s profit nearly quadrupled in 2023.
Regarding Tesla’s cautious outlook for 2024, it does not necessarily imply long-term stagnation. Its focus on developing new products and enhancing its range underscores its commitment to innovation and expansion.
The Bottom Line on Tesla Stock
Let's acknowledge that Tesla is currently facing challenges and uncertainties. Additionally, as Tesla’s profit margin gap closes on its competitors, justifying its premium valuation becomes tough, restricting the upside potential in 2024.
In light of these many concerns, analysts have grown cautious on Tesla stock. Among the 29 analysts covering TSLA, six have “Strong Buy” ratings, two recommend “Moderate Buy,” 16 have a “Hold,” and five suggest “Strong Sell.” Moreover, the average price target is $196.37, indicating a relatively modest upside potential of approximately 11% from current levels.
However, it is important to highlight that Tesla’s long-term outlook remains promising. Further, this pullback in Tesla stock presents an attractive entry point. As a pioneer in the EV space, Tesla has competitive advantages and technological advancements on its side, which supports the bull case right now.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
