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?