Tesla shares drop $350bn since July

The biggest cloud looming over the electric car giant is the slowdown in the demand for electric vehicles, which is happening just as competition from legacy carmakers and Chinese rivals is heating up. 

Tesla shares have shown signs of life in recent days after this year’s extreme slide, but investors lack the clarity needed to bet on any lasting recovery.

The electric vehicle maker is due to provide its first-quarter delivery numbers early next week and rapidly dropping estimates over the past month suggest a lacklustre report. More importantly, recent news flow implies tepid demand for its cars in coming months.

“Delivery estimates have been cut a lot, and that has really killed investor confidence in the name. It will be hard to spin the first-quarter numbers positively, even if they modestly beat expectations,” said Nicholas Colas, co-founder of DataTrek Research. 

“Valuations are often tied to a company’s weakest link. In Tesla’s case, that is the automotive business,” he said. 

Reasons for the shares’ dismal run this year — down 28% compared to a 10% advance in the S&P 500 Index — are many. However, the biggest cloud looming over the electric car giant is the slowdown in the demand for electric vehicles, which is happening just as competition from legacy carmakers and Chinese rivals is heating up. 

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The soon-to-end first quarter will rank among the stock’s three worst ever. The EV maker is the biggest percentage decliner on the S&P 500 so far this year. The stock has given up all its gains since mid-May, and has erased over $350bn (€324bn) from its market capitalisation since touching a 52-week high in July.

Expectations are low. Analysts have been rapidly dialing back their estimates for deliveries, revenue and profit, while the share of bullish ratings on the stock has dropped to the lowest in about three years. But more importantly, enthusiasm toward Tesla has eroded significantly, with investors concerned over a lack of new catalysts that can propel the stock near term.

Several analysts cut estimates just this week. Mizuho Securities’ Vijay Rakesh noted that electric car sales expectations were decelerating faster than expected. Rakesh estimates sales will grow about 15% over last year in 2024, down from his prior expectation of 25%. And Sanford C. Bernstein’s Toni Sacconaghi said that as growth expectations decline, the stock increasingly looks expensive compared to large-cap tech companies.

“There is quite a bit of pessimism already built into the stock at these levels,” said Ivana Delevska, chief investment officer at Spear Invest. 

“From here, I think it will be a binary outcome,” she added. 

Bloomberg