In just a few months, Tesla (TSLA +0.07%) has gone from market darling to market dud.
The electric vehicle (EV) leader remains one of the best-performing stocks of the past decade and soared through the early stages of the pandemic as the company reached a critical tipping point, delivering profitability and proving that electric vehicles were going mainstream. More recently, however, Tesla stock tumbled on reports of manufacturing slowdowns in China, a slight miss on its 2022 production target, CEO Elon Musk's antics after he bought Twitter, and the company's recent decision to slash prices on most of its vehicles by as much as 20%.
As a result, the stock is down 36% over the last three months, significantly underperforming the S&P 500, which rose by 11% during that time.
But could Tesla rebound to beat the market in 2023? Let's take a look and consider what the upcoming year may hold for the leading EV maker.
Image source: Tesla.
Tesla in 2023: A host of new challenges
For several years, Tesla essentially had the EV market to itself, at least in the U.S. However, that is rapidly changing as new EV companies like Rivian and Lucid ramp up production and traditional automakers like GM and Ford elbow their way into the fast-growing market.
The other startup EV makers are still well behind Tesla in terms of manufacturing capacity, but both they and traditional automakers are ramping up capacity quickly. Ford, for example, sold just 13,258 of its Lightning F-150 EV pickup trucks last year. It expects to produce 150,000 of them in 2023.
As the market gets more crowded, Tesla will have to do more to stand out in order to maintain both its leadership position and its strong operating margins. Its recent price cuts cast doubt on its ability to maintain those margins, though Musk has previously said that its vehicle prices should come down as its costs do. Also, the newly lower price on the Model Y will allow buyers to take advantage of federal tax credits for EV purchases.
Viewed in context, Tesla's decision to lower prices seems like a tactic intended to help it maintain market share and fend off competition. However, it will come at a cost to the bottom line, and Wall Street analysts have already slashed their 2023 earnings and revenue estimates for the company.
Finally, Tesla's brand and reputation seem more at risk than ever before as Musk's acquisition of Twitter has made him even more of a lightning rod for controversy than he was before, and the automaker's EVs themselves seem to be losing some of their shine. According to a Morning Consult poll conducted this month, 13.4% of U.S adults surveyed have a favorable view of Tesla, down from 28.4% a year ago. While he seems to be getting quieter in terms of his posts on the social media platform, that kind of brand damage is hard to overcome, and some of those potential Tesla customers may be gone for good.
Tesla's plans for 2023
Tesla, of course, isn't planning to sit still this year. Musk previously outlined a multiyear goal of increasing production by 50% each year. To hit that goal, the company would need to make nearly 2 million vehicles in 2023. It's also planning to start mass production of its Cybertruck at the end of the year (it had initially aimed to do that in 2021), and is ramping up capacity at its Texas Gigafactory with a $775 million expansion in order to increase Model Y production and start churning out Cybertrucks. Finally, it's also reportedly planning to build a new $10 billion factory in Mexico, which would be its sixth factory.
And just weeks after delivering its first Tesla Semi to Pepsi, the company is ramping up production of those heavy-duty trucks with a goal of producing 50,000 of them in 2024.
Tesla will have to keep expanding its production capacity in order to gain market share, meet investor expectations, and meet more of the broadening demand for EVs.
NASDAQ: TSLA
Key Data Points
Will Tesla beat the market in 2023?
Going into 2023, Tesla faces a number of headwinds, including its brand damage and price cuts. Additionally, if the economy sinks into a recession, that would almost certainly weigh on Tesla and other high-end carmakers.
At this point, expectations for Tesla and its pure-play EV peers still seem to be too high, especially with challenges emerging from Ford and other traditional carmakers. Whether Tesla beats the market this year will likely depend on how well the overall market performs, as sentiment toward EV stocks tends to be more favorable in a broadly bullish environment.
However, with its profit margins expected to contract and competition rising, 2023 is shaping up to be a tough year for Tesla stock.
Still, it's a mistake to focus on any stock's performance in a single year, as in the short term, market dynamics can have a greater influence on share prices than a business's fundamentals.
Taking a longer view, if Tesla can execute on its production goals, gain market share in the automotive sector, and maintain its industry-leading profit margins, the stock could be a winner from here -- especially after it sank so significantly in 2022.
