HomeBusinessTesla shares are down 60%. How much further could it tumble?

Tesla shares are down 60%. How much further could it tumble?

The growth story of Tesla (NASDAQ: TSLA) starting to look shaky. After years of ever-increasing deliveries of its popular electric vehicles (EVs), the company has hit economic reality head first. Demand for electric vehicles is declining, so much so that traditional car manufacturers are pulling back on their ambitious plans. In China, cheaper alternatives are eating Tesla’s lunch.

Difficult times for Tesla

Telsa’s quarterly deliveries fell in the first quarter of 2024, the first time since the pandemic began. The company delivered 386,810 vehicles, down 20% from the fourth quarter of 2023 and 9% from the first quarter of 2023. Meanwhile, Tesla produced nearly 50,000 more vehicles than it delivered.

Tesla has also recently taken some steps to increase sales. The company now requires employees to demonstrate the company’s fully self-driving (supervisory) system upon delivery, which does not make the car fully autonomous. This system is an expensive add-on that does not come standard with Tesla vehicles.

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Tesla also recently reduced the monthly subscription price for Full Self-Driving (FSD) from $199 to $99, which is likely a sign that adoption is lower than the company would like. This price reduction could help Tesla increase recurring revenue if it can grow its subscriber base significantly.

The company is also cutting costs. Tesla is reportedly planning to lay off more than 10% of its global workforce, which amounts to at least 14,000 employees.

Given Tesla’s troubles, it’s not surprising that the stock has crashed about 60% since its pandemic-era peak.

The crash may not be over yet

How much further can Tesla stock fall? No one can definitively answer that question, but what we can do is look at Tesla’s valuation relative to other automakers.

Even after the stock market crisis, Tesla is valued at around $525 billion. In the meantime, General engines is valued at $50 billion, Ford at $49 billion, and Toyota at $332 billion. Tesla is still worth more than all three combined. Tesla delivered 1.81 million vehicles in 2023, while Toyota sold more than 10 million.

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A common argument to justify Tesla’s sky-high valuation is that the company does other things besides producing vehicles. That’s certainly true, but that argument doesn’t seem as strong as it once was.

Software would be a key growth driver for Tesla, but given the massive price reduction for FSD, it doesn’t seem like demand is particularly strong. Tesla is selling solar panels, but industry-wide demand is declining due to high interest rates, lower demand and changes in net metering in California. One analyst expects residential solar sales to fall 13% this year. Tesla’s battery storage business could also suffer, as solar and battery storage often go hand-in-hand.

Tesla had about $29 billion in cash and short-term investments at the end of 2023. That cash cushion gives Tesla plenty of breathing room, but not enough to avoid major layoffs. If there’s one type of company that can burn through cash quickly during a recession, it’s an automaker.

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The story that propelled Tesla stock to incredible heights doesn’t look nearly as compelling today as it did a few years ago. With Tesla’s valuation still at nosebleed levels, the stock looks incredibly risky.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has a disclosure policy.

Tesla shares are down 60%. How much further could it tumble? was originally published by The Motley Fool

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