After strong growth in both the company and its stock last year, Tesla (TSLA +2.36%) has gotten off to a rough start in 2024. The stock doubled in 2023, but has tumbled by 25% in just the first six weeks of the new year.
There are multiple reasons why investors have been selling Tesla shares recently. Because of that drop, though, the stock was recently at its lowest level since last spring. It now makes sense to look at what sent Tesla stock falling below $200 per share, and whether this is a good opportunity for investors to buy it.
NASDAQ: TSLA
Key Data Points
Benefits of an EV growth slowdown
Tesla hit its electric vehicle (EV) production target in 2023, resulting in 35% growth over 2022. Most of the 1.8 million EVs delivered by Tesla were the Model Y SUV -- the best-selling vehicle of any kind globally last year. But there were signs of slowing growth in overall EV demand as the year progressed.
Interest rates are one reason. During Tesla's third-quarter conference call with investors in October, CEO Elon Musk specifically noted, "If interest rates remain high or if they go even higher, it's that much harder for people to buy the car. They simply can't afford it."
Fast-forward to the company's fourth-quarter call late last month, when Musk began to look at the potential gains from a cycle of interest rate cuts that many expect to start this year. "We have lots of people who want to buy our car but simply cannot afford it," he said. "And so ... as interest rates drop and that monthly payment drops, then they're able to afford it and they buy the car."
Another advantage Tesla has gained from the deceleration in EV demand growth is that large competitors like Ford and General Motors have throttled back their EV production plans. Ford CEO Jim Farley told investors his company is rethinking its vertical integration plans for EV and battery production. Should EV demand growth reaccelerate, that will once again give Tesla an advantage on costs. That could lead to a rebound in Tesla's sinking profit margins via increases in average selling price (ASP). That would be something investors would cheer. After all, even after it repeatedly cut its vehicle prices last year, the company still generated $4.4 billion of free cash flow after spending for future growth.
Solar and energy storage
Another thing investors may start paying closer attention to is the growth in Tesla's energy business. Its energy storage segment grew by more than 130% in 2023. That increase in deployed Megapack storage capacity and energy generation resulted in revenue of more than $6 billion last year.
Data source: Tesla. Chart by author.
That's a meaningful number, and on the conference call, Musk expressed optimism that growth is here to stay. "I think we'll continue to see very strong growth in storage, as predicted," he said.
The Elon Musk factor
Owning any stock comes with risks. But Tesla's unpredictable CEO has brought some additional risks to the company an investment. Musk has expressed a desire to own more of the company so that he can have more control over the direction of its efforts in artificial intelligence technologies. But a shareholder recently won a lawsuit that nullified the nearly $56 billion pay package for Musk that Tesla's board approved in 2018.
That has heightened concerns surrounding Tesla's corporate governance and raised questions about the outlook for board or leadership changes. If Musk decides to focus on one of his many other major projects, the stock would likely take a hit.
For those who can stomach those added risks, though, Tesla's recent dip below $200 per share might present a tempting opportunity to gain exposure to this multifaceted EV leader. If EV growth continues, even at a slower pace than before, Tesla is positioned to be the biggest beneficiary in the coming years.
