What happened
Shares of Tesla (TSLA 4.90%) have plummeted since the market peaked and a bear market began. The electric vehicle (EV) stock is down a resounding 74% since that day on Jan. 3, 2022, according to data provided by S&P Global Market Intelligence.
That could mean now is the time for investors to jump in after thinking they missed out on this former highflier. The question is: What will it take for the stock to recover in 2023?
So what
There's a long list of what went wrong and caused the severity of the decline in Tesla stock during this bear market. Before determining whether the stock will go from laggard to leader in 2023, it's helpful to look at what went wrong since early 2022. For one thing, the stock rocketed 1,250% in the two years leading up to the market peak.
That was a massive outperformance over the 78% total return by the Nasdaq Composite index over that same period. It also wasn't based on business fundamentals as much as the potential that investors saw in the company, leaving it vulnerable to correct more than the overall market.
The bear market also came as Tesla faces increasing competition, global economic slowdowns impacting demand, and disruptions to its Chinese factory. Investors also struggled to balance stock sales by CEO Elon Musk and his preoccupation with running Twitter.
Image source: Tesla.
Now what
Tesla recently announced a new round of vehicle price cuts in China, presumably to help spur sales. That's an acknowledgement of growing competition as well as a reminder that it sells what could be considered a luxury consumer product. Expanding its offerings to a more-diverse target market will be necessary for the stock to recover.
The company has already started that process, having begun sales of its Semi truck. The Cybertruck, a pickup, is also set to begin production in 2023.
One thing to watch for are any updates on when, or whether, Tesla will offer a low-priced mass market EV. Concrete plans to enter the compact EV market will likely boost shares.
Other factors to reverse the recent slide in Tesla shares are somewhat out of the company's control. The EV market must continue to grow, but that's just a small sub-sector of the automotive industry.
Overall auto sales need to pick back up. Last year marked the lowest level of new auto sales in the U.S. in more than a decade. The industry projection of about 13.8 million vehicle sales last year is the lowest level since 2011 and down from more than 17 million units in 2019.
Tesla's price-to-earnings ratio has now dropped below 20 based on 2023 analyst earnings estimates. That's a level that should garner more investor interest. If CEO Elon Musk signals a greater focus back on Tesla, and the business developments listed above start to occur in 2023, this year could mark a turnaround for Tesla stock.
