After a strong showing in 2023, Tesla (NASDAQ:TSLA) is facing challenges in 2024. The electric vehicle (EV) giant’s shares have fallen by about 40% from their 52-week high of $299.29, and are down nearly 29% year-to-date. This decline is due to softer EV demand and increased competition in the sector. Tesla has responded by cutting average selling prices, which has hurt its profit margins and stock price.
Tesla’s leadership has also issued a cautious outlook for 2024, predicting that volume growth will fall short of the company’s targeted compound annual growth rate (CAGR) of 50%. This is largely due to a shift towards developing new products, such as its next-generation, lower-cost EV. While this is a strategically sound move, investors have reacted negatively, adding to concerns.
Perhaps the most concerning development for investors was Tesla’s lower-than-expected delivery numbers in Q1. The company delivered 386,810 vehicles, missing analysts’ estimates of 425,000. Deliveries also marked an 8.5% year-over-year decline, the first since Q2 2020. Tesla attributed the decline to production challenges, but weak demand and increased competition also played a role.
Tesla is one of the worst-performing stocks in the S&P 500. Can it turn things around?
The Bull Case for Tesla
Despite the challenges it faces, Tesla still has the potential to rebound. It is the global leader in the EV space, with strong brand recognition, technological expertise, and extensive manufacturing capabilities. The company’s efforts to improve its existing products and the upcoming launch of its next-gen, affordable EV show that it can adapt to changing market conditions.
Tesla’s ability to use its industry-leading profit margins to strategically cut prices and increase sales volume is a major challenge for its competitors. The company’s continued decrease in cost of goods sold (COGS) per vehicle gives it a further competitive advantage. Expanding production capacity and improving cost efficiency should lead to better profit margins and lower vehicle prices.
Tesla is also focused on improving the performance and features of its vehicles, particularly through AI-driven technologies like Full Self-Driving (FSD) and . This will help it maintain market share over the long term. Beyond EVs, the company’s Energy Generation and Storage division is seeing significant growth in energy storage deployments, which should boost its profitability.
While Tesla’s cautious outlook for 2024 is a concern, the company remains committed to innovation and expansion through new product development.
The Bottom Line
Given the current challenges and uncertainties, Tesla’s premium valuation is becoming harder to justify as its profit margin advantage narrows. Analysts are cautious, with a modest upside potential of around 11% from current levels.
However, the long-term outlook for Tesla remains promising. As a pioneer in the EV space, with competitive advantages and technological leadership, the current pullback could be an attractive entry point for investors.