6 months ago
43
Tesla (NASDAQ: TSLA) is one of the world's largest manufacturers of electric vehicles (EVs), but its stock is down 39% from its all-time high, which was set during 2021, and it continues to underperform the S&P 500 index this year.
Tesla is facing several challenges relating to EV demand, competition, and rapidly slowing sales growth. In fact, the company's annual EV deliveries could shrink in 2024 for the first time since it started producing its flagship Model S in 2011.
Tesla stock still looks extremely expensive despite its decline since 2021. Here's why an annual drop in EV sales could be the trigger for even further downside.
Tesla is having a tough year
Tesla's total EV deliveries sank 6.5% in the first half of 2024 relative to the same period last year, and the company just announced its third-quarter deliveries, which fell short of Wall Street's expectations. Those results look even worse when you consider Tesla has slashed its prices over the past year to spur demand.
The price cuts have led to a steady decline in Tesla's gross profit margin, which is now down by half compared to its peak three years ago. In other words, lower prices have failed to ignite the company's sales growth, and they have significantly dented the company's profitability.
But those challenges aren't unique to Tesla. Sales of EVs overall plunged 44% in Europe during August, with their market share slipping to just 14% from 21% in the same month last year. Plus, car manufacturers like General Motors and Ford Motor Company have slashed billions of dollars in planned investments into their EV segments, citing soft demand.
Tough economic conditions headlined by high interest rates might be pushing consumers into cheaper gas-powered cars instead.
But competition is another big headwind for Tesla. Manufacturers in countries with low production costs -- like China-based BYD -- are churning out EVs at price points that Tesla simply can't compete with. The BYD Seagull, for example, sells for under $10,000 in China, and it's likely to enter Europe in 2025.
Tesla has a big presence in both China and Europe, so it's feeling the pressure. That's why the company plans to launch a low-cost EV of its own next year that could be priced at just $25,000. It probably won't be enough to displace the Seagull, but it might entice low-income consumers who want a more premium product.
Tesla's deliveries are at risk of an annual decline
Tesla began production for its flagship Model S in 2011, and it delivered 2,600 of them to customers in 2012. Thanks to the company's expanding fleet, which now includes the Model 3, Model Y, Model X, and Cybertruck, its deliveries have grown every year since then.
