Tesla (NASDAQ: TSLA) stands as one of the globe’s largest electric vehicle (EV) manufacturers; however, its stock has descended 39% from its peak in 2021. Meanwhile, it continues to lag behind the S&P 500 this year.

Tesla confronts a slew of obstacles concerning EV demand, competition, and decelerating sales growth. Interestingly, there’s a looming possibility that the company might experience a decline in EV deliveries in 2024 for the first time since its iconic Model S launch back in 2011.

Despite the dip since 2021, Tesla’s stock maintains a lofty valuation. The imminent annual dip in EV sales has the potential to catalyze further downtrends.

Tesla’s Battle in 2024

Tesla observed a 6.5% slump in total EV deliveries during the first half of 2024 compared to the previous year. Furthermore, the recent third-quarter deliveries data failed to meet Wall Street’s expectations. These figures worsen when factoring in Tesla’s significant price reductions over the past year aimed at boosting demand.

The perpetual price cuts have led to a notable erosion in Tesla’s gross profit margin, now halved from its peak three years prior. In essence, the lowered prices not only failed to rekindle sales growth but also severely impacted profitability.

However, Tesla isn’t alone in these trials. EV sales in Europe nosedived by 44% in August, with market share slumping from 21% to 14% year-over-year. Major auto manufacturers like General Motors and Ford Motor Company have similarly axed billions in planned EV investments, citing tepid demand.

Given harsh economic conditions accentuated by soaring interest rates, consumers are likely gravitating towards more economical gas-powered vehicles.

Competition emerges as another substantial challenge for Tesla. Manufacturers in countries with low production costs, such as China’s BYD, are flooding the market with EVs priced beyond Tesla’s competitive reach. For instance, the BYD Seagull retails below $10,000 in China and may enter the European market by 2025.

With sizable operations in both China and Europe, Tesla feels the competition’s heat. Consequently, the company plans to launch its low-cost EV next year, potentially priced at $25,000. While unlikely to outpace the Seagull, this move could allure budget-conscious consumers seeking a more premium offering.

Tesla’s Deliveries: A Potential Decline

Having commenced Model S production in 2011 with 2,600 deliveries that year, Tesla’s fleet expansion — encompassing the Model 3, Model Y, Model X, and Cybertruck — has led to annual delivery growth since then.

In a standout year like 2023, Tesla achieved a record 1,808,581 car deliveries, reflecting a 38% increase from the previous year. While commendable, this growth rate notably trailed CEO Elon Musk’s targeted 50% annual growth.

Furthermore, amid the enumerated challenges, Musk refrained from providing a 2024 delivery forecast, prompting some analysts to project around 2.2 million deliveries. This equates to a mere 22% growth from 2023, falling substantially short of Musk’s ambitious 50% target. Yet, a more pressing issue looms.

With only 1,293,656 car deliveries in the initial three quarters of 2024, Tesla needs to deliver a record 514,925 units in the final quarter to surpass last year’s figures. Failing this, annual deliveries could retract for the first time post the Model S debut.

Image source: Tesla.

Tesla’s Stock Valuation Conundrum

With Tesla’s trailing-twelve-month earnings per share (EPS) at $3.56 and a stock price of $249.27, the company presently trades at a price-to-earnings (P/E) ratio of 70. This figure dwarfs the Nasdaq-100 technology index’s P/E ratio of 32.1, highlighting Tesla’s premium valuation compared to peers.

Notably, Tesla’s valuation exceeds that of Nvidia, which boasts a P/E ratio of 55.7. The glaring disparity lies in Nvidia’s projected 138% EPS growth for the current fiscal year juxtaposed with Tesla’s anticipated EPS contraction in 2024. Such divergence renders Tesla’s premium in the tech sector unfathomable.

While many investors bet on Tesla for its future prospects outside the EV realm, including self-driving software, humanoid robots, and solar power solutions, the company still relies heavily on EV sales, constituting 78% of its total revenue. It’s imperative for investors to monitor the core business alongside the futuristic ventures.

To align Tesla’s P/E ratio with the Nasdaq-100, its stock needs to plummet by 54% from current levels. Consequently, investors at the current price may be exposing themselves to substantial risk should sentiment turn negative. The impending decline in EV deliveries could be the catalyst, particularly if 2025 growth forecasts remain bleak.

Is Investing in Tesla a Wise Move?

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