Down Almost 20% This Year, Is Tesla Stock Good Value?

Tesla (NASDAQ:TSLA) has had a tough 2024 thus far with the stock down nearly 20% since the beginning of the year, compared to the S&P 500 which has gained about 5% over the same period, amid concerns of cooling EV demand,  weaker-than-expected Q4 2023 results, and mounting competition. Over Q4, Tesla saw its revenues grow by just about 3.5% year-over-year to $25.2 billion, after several quarters of high growth rates. Tesla’s profitability has also come under pressure, as aggressive price cuts take a toll on Tesla’s margins. The average price of a Tesla vehicle has declined to $44,500 as of Q4, down from over $52,000 in the year-ago quarter. Tesla’s gross margins have declined 610 basis points year-over-year to 17.6% while operating margins almost halved to 8.2%.

Competition is also mounting and Tesla’s lineup is aging with its Model 3, Y, X, and S remaining the same visually since launch. This is in contrast with mainstream automakers, who typically overhaul vehicle models every six to seven years. China’s BYD surpassed Tesla as the largest EV maker in the world for 2023.

The near-term outlook looks mixed, as the company warned that 2024 sales growth would be notably lower amid slowing consumer demand and high interest rates which are making it more expensive to finance EV purchases. The company also had to suspend production in Germany for two weeks in late January on account of parts shortages caused by shipping delays via the Red Sea. Tesla also recently carried out new price cuts in China and Europe and this could further weigh on margins.

Now TSLA stock has also seen a decline of 15% from levels of $235 in early January 2021 to around $200 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the decrease in TSLA stock has been far from consistent. Returns for the stock were 50% in 2021, -65% in 2022, and 102% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TSLA underperformed the S&P in 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Consumer Discretionary sector including AMZN, TM, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TSLA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

We currently remain marginally positive on Tesla stock, with a $210 price estimate, which is about 5% ahead of the market price. We continue to believe that Tesla will remain a big beneficiary of the long-term transition to cleaner transportation and energy generation, given its well-oiled supply chain, superior battery and drive train tech, and its lead with software and self-driving technology. Tesla is also looking to manufacture a mass-market vehicle, which is likely to be a compact crossover starting sometime toward the end of 2025 and this could help drive growth in the long run. In the near term, Tesla could benefit from the recent launch of a mildly refreshed version of its Model 3 and the introduction of its Cybertruck pickup truck. Tesla also began a limited amount of advertising in the second half of 2023 – something that the company has largely avoided since its incorporation. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?

[1] Returns as of 2/20/2024
[2] Cumulative total returns since the end of 2016

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