What Next After Tesla Stock Dropped 6% In A Day
Tesla stock (NASDAQ;TSLA) declined by close to 6% in Thursday’s trading, with the stock closing at about $211 per share. There are a couple of developments likely driving the sell-off. BMW beat Tesla in terms of EV deliveries in Europe for July, per a report by JATO. While BMW saw volumes for the month rise by 35%, Tesla witnessed a 16% year-on-year decline. While battery electric vehicle sales in Europe have been cooling off for a while now, Tesla has seen its mass-market Model 3 and Y face mounting competition from newer models by European manufacturers. Separately, Tesla’s Vice President of Finance recently resigned from the company. In recent months, several top executives, including Tesla’s Senior Vice President of Energy, the Head of Public Policy, and the Director of Superchargers, have also exited the company. This wave of departures could also be negatively impacting the stock.
Looking at a longer time period, TSLA stock has seen a decline of 10% from levels of $235 in early January 2021 to around $210 now, vs. an increase of about 50% 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, F, and LCID, and even for the mega-cap 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?
Tesla’s recent performance has been a mixed bag. The company released its Q2 2024 results about a month ago, showing a nearly 7% year-over-year decline in automotive revenue and a 42% drop in earnings. Several factors, such as high interest rates and increasing competition in key markets like China, a lack of extensive charging networks in many countries, and falling resale values for EVs are likely discouraging potential buyers. The market of early EV adopters is also likely saturating, leading to lower demand. However, we maintain our view that Tesla will be 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 technologies, and its lead with car software and self-driving technology. The company’s energy business has also been a bright spot of late. Storage and energy sales doubled from the previous year, reaching around $3 billion over the last quarter. We value Tesla stock at $230 per share, which is slightly ahead of the current market price. 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?
| Returns | Aug 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| TSLA Return | -9% | -15% | 1389% |
| S&P 500 Return | 2% | 18% | 151% |
| Trefis Reinforced Value Portfolio | 4% | 11% | 725% |
[1] Returns as of 8/23/2024
[2] Cumulative total returns since the end of 2016
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