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For years, Tesla (TSLA) has been among the top growth stocks, especially for many retail investors. However, 2024 hasn’t been a good year for Tesla investors. It is the worst-performing S&P 500 Index ($SPX) stock on a YTD basis, with its price action looking like a mirror opposite of 2023, when the shares more than doubled.
Tesla is also the worst-performing stock among the elite “Magnificent 7” group, and many analysts are now questioning its growth story, with Wells Fargo analyst Colin Langan arguing that it is a “growth company with no growth.” And in Friday's session, the stock pulled back again on reports of lowered production at its plant in China.
How low will Tesla stock go amid a tarnished growth story? Let's take a closer look.
What Happened to the Tesla Growth Story?
Way back in its Q4 2020 earnings call, Tesla touted a long-term delivery CAGR of 50%, with CEO Elon Musk stressing, “we do think that we can maintain a growth rate in excess of 50% per year for many years to come.”
The company’s deliveries did rise by over 50% in 2021 as Tesla had predicted (up 87%, to be precise), but in 2022, its delivery growth slowed to around 40%. Last year, Tesla’s deliveries rose 38%, and Musk effectively withdrew the 50% CAGR guidance.
Cut to 2024, and Tesla has warned that this year's delivery growth “may be notably lower than the growth rate achieved in 2023.” Langan is also quite circumspect about Tesla’s growth prospects; while he expects deliveries to be flat in 2024, the Wells Fargo analyst expects the company's deliveries to fall next year.
Tesla’s problems are not limited to top-line growth alone, as its performance on the bottom line has also faltered. The company’s gross margins fell 15% YoY last year, while adjusted earnings per share (EPS) tumbled 23% to $3.12.
Analysts expect Tesla’s adjusted EPS to fall slightly in 2024, while predicting a nearly 13% rise in revenues. We have seen this bifurcation between Tesla’s revenue growth and profitability for the last several quarters amid the ongoing EV price war, which was initiated by Tesla.
Tesla is prioritizing volume growth over profits, which has led to a compression in its profit margins. The EV price war has taken a toll on other industry players, too, as most have had to cut prices to make their models competitive.
Tesla Stock Price Prediction: How Low Will Tesla Stock Go?
Tesla remains among the most polarizing stocks, which is well reflected in its target prices; Wall Street estimates range from a low of $85 to a high of $320. Put differently, while some experts expect the stock price to be cut nearly in half, others foresee TSLA doubling from current levels.
And we haven’t yet factored in perma-bull Cathie Wood of Ark Invest, who has set a base case 2027 target price of $2,000 on Tesla. Even her bear case target price is $1,400, while the bull case target price is $2,500.
Of late, though, brokerages have been pruning Tesla’s target price amid rising concerns over its sales growth. That includes Goldman Sachs, which lowered Tesla’s target price from $220 to $190. The brokerage’s best-case scenario calls for Tesla stock to rise to $300, while the worst-case scenario pegs the target price between $65-$85 - which it says is 30x the expected 2024 EPS.
Has Tesla Stock Bottomed Out?
I believe Tesla stock should bottom out soon, and don’t see it falling below $150 - which is around 35x its expected 2025 EPS. To be sure, the company seems to lack any real short-term catalysts. While the Cybertruck is still a long way from mass production, the new low-cost model has yet to be announced.
As a result, Tesla is currently in the penalty box. Not only have the market sentiments toward EV stocks soured, but Tesla’s new growth ideas are at least a couple of years away.
As Musk said during Tesla’s Q4 earnings call, “Tesla is currently between two major growth waves. We're focused on making sure that our next growth wave driven by next-gen vehicle, energy storage, full self-driving, and other projects is executed as well as possible.”
Ashwath Damodaran Sees a Buying Opportunity in Tesla Stock
While some of the long-standing Tesla bulls, including Adam Jonas of Morgan Stanley, have lowered the stock’s target price, valuation guru Ashwath Damodaran - who is far from being a Tesla bull - sees some valuation appeal in the stock near current levels, and said that he bought some shares at near $180 per share. Notably, TSLA is the only Magnificent 7 stock that the “dean of valuation” has bought recently, as he singled out Nvidia (NVDA) and Microsoft (MSFT) for being particularly overvalued.
Incidentally, Damodaran - who has been horrendously wrong on Tesla in the past - has factored in a five-year revenue CAGR of 31% in his analysis. I believe that while 2024 could be a tough year for Tesla amid the slowing sales growth and falling margins, the company could see much better days in 2025 and beyond, especially as interest rates revert to more normalized levels. Also, as the EV industry consolidates, we should see some sanity return in pricing – signs of which are already visible, with Tesla raising the price of its bestselling Model Y.
Overall, I believe long-term investors can consider Tesla shares around these levels, as it remains one of the most consequential companies of our times, with a presence in multiple exciting industries like electric cars, renewable energy, autonomous driving, robotics, and supercomputers. While the short-term outlook might be hazy at best, the recent dip is a good opportunity to scoop up shares for the long term.
On the date of publication, Mohit Oberoi had a position in: TSLA , MSFT , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
