The most likely explanation is increasing competition from other carmakers, and perhaps damage to the Tesla brand. Both things predicted on this thread years ago. ... Seems that the EV market is, in fact, becoming a highly competitive low-margin business, which really calls into question TSLA's high valuation.
You mean like this?
Tesla's high car prices and their high stock price are a result of its high margins. Period.
Consumers are willing to pay these high margins because no other car manufacturers are mass producing products like Teslas (except for a few startups, whose products are not yet widely available).
To me, that's remarkably shaky ground. Most of the world's auto manufacturers are rolling out Tesla-like vehicles in the next couple of years. Tesla will eventually be forced to spend money on marketing, like their competitors are doing, and they will have to lower prices / margins to meet the competition. Meanwhile, Tesla's sales of regulatory credits will diminish.
https://www.fool.com/investing/2022/04/25/heres-the-secret-behind-teslas-industry-leading-ma/
So yes, the end of growth means the end of TSLA as a high margin growth stock. Here we are, a "couple of years" after 2022 when these concerns were being raised and we're watching Tesla suffer reduced sales growth
at lower prices and at lower margins amid a wave of competition.
A 9% decline in deliveries for the quarter is a disaster for a company that's still priced like a growth stock. My back-of-the envelope math is that's a $1.5B to $2.0B revenue hit when compared to Q1 of last year.
I'd still give Tesla a bit of a premium compared with traditional automakers, as their 17% margins are still much better than the Ford/GM 9%-10% margins. But the growth story is done for. Particularly since they just launched Cybertruck, but don't consider that a growth engine.
These are rough numbers, but should be a reasonable guide.
GM trades at a P/E of 6 and Ford trades at a P/E of 15.
This gives Tesla a fair value of $71/share at a PE of 15 and $95/share at PE 20. However, that's before this Q1 revenue decline, which means fair value is probably quite a bit lower. This stock still has a long ways to fall before falling below fair value.
There's a price that the shares will make sense again. But we're not there yet.
IDK if Tesla will fall to a PE of 20 simply because their lead in self-driving tech offers some hope for future revenue growth and propped-up margins. But a PE of 25-35 is not out of the realm of possibilities. They're currently at a PE of 38.75.
The new wildcard IMO is this new political environment of
protectionism and national champion manufacturers. Tesla's substantial investment in China is suddenly at risk because Tesla can never become one of China's national champion car companies like BYD or Nio. They could easily be forced out of the country with little bureaucratic nudges like several American financial institutions recently were, or face outright asset confiscation, the way BP was pushed out of Russia. Since Elon poured Tesla's resources into China, the country's policy changes and real estate collapse have left the country uninvestable in the opinion of many American investors and companies. Yet Tesla is stuck there, enjoying
0.2% sales growth and less than a third of BYD's market share.
An invasion of Taiwan would cut TSLA in half.
In terms of brand destruction by Musk, it's only gotten worse.
Antisemitic,
anti-black, and anti-Native-American tweets and a lawsuit against the Center for Countering Digital Hate have occurred at the exact timeframe when Tesla's core customer base became
inundated with alternatives to Tesla products. Having a Tesla is suddenly less about green cred and is becoming an embarrassment through association with right-wing activist Elon Musk.
Meanwhile, the Cybertruck appears to be a product which will never gain mass appeal with the mainstream US truck market. It was apparently a CEO-designed vanity project, which makes it a wasted opportunity. Tesla will have to stop wasting opportunities and start delivering new products every 4-5 years like everybody else.
I expect to see the first Tesla advertisements in late 2024.
I think Salesforce at a PE of 72.3 has more growth potential than a half-Chinese heavy manufacturer at a PE of 38.75.
