A $94 Billion Drop In Market Value Due To 'Worst Start' in Nearly 15 Years: What's Happening with Tesla?
3min read After a remarkable 2023, Tesla's stock price appears to have a completely different story in 2024. In the first two of the year, the E.V. maker has seen continuous decreases in its share prices, resulting in a market value loss exceeding $94 billion, which is the company's largest market value shrinkage during the same period since going public in 2010.
Elon Musk's company is currently experiencing its worst start to a year in history: After sliding nearly 12% in the first 9 trading days of 2024, Tesla's shares now stand at $218.89 per share. Further, calculated in percentages, Tesla's 12% decline since the start of the year is also the most significant stock plunge since 2016 when it fell 14% within the first nine trading days.
Yet, combined with recent news related to the company, it's not hard to understand why Tesla would show such an unfortunate performance entering 2024. In fact, the Austin, Texas-based EV manufacturer has been suffering a severe blow from negative news; for instance, last week, the car rental giant Hertz announced that it plans to replace Tesla's EVs with gas cars again due to high related expenses.
Investors' main concern on Tesla is stagnating growth, said Cowen analyst Jeffrey Osborne in an interview. However, the worst for Tesla is that there might not be any chances in the near future to reverse the trend.
We are going through a cyclical downturn for EVs, but competitive dynamics are exacerbating the cyclical pressures, and price cuts and plummeting margins are all a function of these unfavorable competitive dynamics, said Ivana Delevska, CIO of Spear Invest.
Such opinion is not unsupported: back in October last year, Tesla already warned of the decline in demand for electric vehicles in its Q3 financial report. Meanwhile, other global auto manufacturers and suppliers also published their bearish forecasts and trimmed their expansion plans.
Therefore, to adapt to the severe macro environment, Tesla has been actively lowering its vehicle prices to boost demand since the start of 2023, but the sacrifice in price has not exchanged for a considerable increase in sales volume. Instead, its once excellent profit margin has even started to be eroded - Tesla's gross margin has already dropped from 27.9% a year ago to 16.3% in Q3.
On top of that, pressure from the UAW for pay raises for its workers and supply chain issues causing Red Sea safety problems have made cost control even more difficult for Tesla.
However, besides externally slowing demand and internally reduced profit, competition from the industry has become even more of a headache for Tesla.
Earlier this month, Tesla published its Q4 delivery numbers. While they outperformed analyst expectations, they fell behind BYD in the quarter's global EV sales: in Q4 2023, BYD sold over 526,000 pure electric vehicles and became the champion of EV sales for the quarter, whereas Tesla's sales volume was approximately 485,000 units.
Although Tesla still led in sales volume for the year compared to BYD, the gap has become minuscule - Tesla delivered approximately 1.81 million EVs worldwide in 2023, and BYD also sold close to 1.6 million EVs last year, an increase of more than 70% compared to 2022.
As such, Tesla CEO Elon Musk has admitted that competition is most intense in China for Tesla and that it's impossible for the company to continue a compound growth rate of 50%.
In fact, after a series of external and internal blows, Tesla, as the eighth-best performing stock in the S&P 500 last year, began to crumble entering 2024 - now, it's the eighth worst-performing in the index. Most crucially, Tesla's price trend probably indicates that more and more investors are reappraising the company.
Given Tesla's past success and the hopes it generated, many investors poured massive amounts of money into its stock in the early years, causing Tesla's market value to inflate rapidly and exceed any other automobile company in the world.
As a result, many Tesla supporters believe the company's real value lies in the future, especially as it stands the most promising chance of achieving real autonomous driving. Musk, the boss, has always advocated for Tesla's identity as an AI + robotics company.
This argument and viewpoint indeed brought ample investors and high share prices to the company; however, it also made Tesla's investors extremely reactive to any negative news, particularly when the so-called autonomous driving seems to still be far off after so many years.
Tesla has not been able to deliver on fully autonomous driving and AI promises, which are already embedded in the valuation, said Delevska, but being simply another automotive manufacturer is not going to cut it for a $750 billion valuation.
Bernstein analyst Toni Sacconaghi also considered previously that the reasonableness of Tesla's stock price is built on investors' belief that it will have extremely high sales to realize high profits like tech or software companies. But in this analyst's view, Tesla's current sales data is making it appear more like a traditional auto company.