Tesla (TSLA 16.21%) was the world's largest electric vehicle (EV) company as measured by sales up until the final quarter of 2023. That's when China-based BYD snatched the title away. And growing competition is just the latest challenge the company faces.

Tesla stock trades down 33% in 2024 already, but it has been sliding since late 2021 and now sits 59% below its all-time high. Some analysts even question whether the company still belongs among the prestigious "Magnificent Seven."

But Tesla's woes are far from over. Dan Ives from Wedbush Securities warned investors to brace for "nightmare" results for the first quarter of 2024, ended March 31 -- and he's one of the most bullish voices on Wall Street. The company just released its Q1 delivery numbers, which were far worse than even the most negative forecast.

So, is it time to sell Tesla stock?

Tesla is facing a demand problem

Tesla spent years battling a lengthy order backlog because it simply couldn't produce EVs fast enough to meet demand. The company opened two new gigafactories in the last two years, in Berlin and Texas, taking its total to five worldwide, but it now faces a new challenge: weak demand.

Tesla delivered just 386,810 vehicles in Q1, which was an 8.5% decline from the year-ago period, and it was also significantly below Wall Street's consensus forecast of 457,000. The company did face supply challenges during the quarter because of shipping disruptions in the Red Sea, and in Berlin, where its gigafactory temporarily shut down because of a fire that temporarily knocked out its electricity supply.

But those incidents were already baked into the Street's estimates, hinting that something else was at play. Investors probably won't hear the company's official explanation until it releases its Q1 financial results later this month.

Charlie Bilello notes on the X platform, using data from CarGurus, that the average price of a used Tesla has plummeted by more than half in less than two years. It now sits at a record low of $31,568, and it's a warning sign that consumers might be souring on the brand:

Dan Ives also pointed to weak demand in China during Q1, where Tesla will probably have to cut prices dramatically to compete with local producers like BYD.

Investors broadly have also taken issue with Tesla's lack of guidance for 2024. CEO Elon Musk previously said production could grow by 50% each year well into the future. But after deliveries increased by only 38% to 1.8 million in 2023, he declined to offer a forecast for this year. Some estimates point to 2.3 million deliveries, but even that modest number might be in jeopardy given the Q1 result.

There is no simple fix for Tesla

Tesla slashed the average price of its vehicles by 25.1% throughout 2023 to spur demand. Despite that, the company still failed to grow deliveries by Musk's 50% target. The price cuts dealt a blow to its bottom line, too, with earnings per share suffering a 23% year-over-year decline.

The most recent data from Cox Automotive suggests prices ticked higher in February, which might be one reason sales recently fell. Tesla will have to choose between growing deliveries and making less money, or selling fewer cars at a higher margin -- but it can't have both.

In a conference call with investors for the fourth quarter of 2023, Musk outlined plans to produce a mass-market EV beginning in 2025, which will probably have a price tag of $25,000 to entice low-income consumers. That will almost certainly spur some fresh growth, but it's probably still two years away from moving the needle.

Plus, there are question marks about demand for EVs in general. Both Ford Motor Company and General Motors have either canceled or postponed billions of dollars in planned investments in their EV lineups in favor of manufacturing hybrids or traditional internal combustion engine-powered cars instead. Both companies cited EV demand concerns.

A blue Tesla car driving on an open road.

Image source: Tesla.

Tesla has a bright long-term future, but the stock is expensive

Most analysts consider Tesla to be a technology company rather than a car manufacturer. While it's true that 85% of Tesla's revenue comes from selling EVs, investors are looking at its autonomous self-driving software and robotics projects as long-term opportunities that could be substantially more valuable.

Cathie Wood's Ark Investment Management, for instance, believes Tesla stock could soar more than tenfold by 2027 on the back of its self-driving technology alone, which could transform the company's economics. Tesla could unlock highly profitable revenue streams by selling the software on a subscription basis, licensing it to other car manufacturers, and building its own autonomous ride-hailing network. I think Ark's forecast is ambitious, but it's an example of the level of innovation that separates Tesla from other carmakers.

In the here and now, based on Tesla's $3.12 in 2023 earnings per share and its current stock price of $166.40, it trades at a price-to-earnings (P/E) ratio of 53.3. That's substantially more expensive than the 30.9 P/E of the Nasdaq-100 index.

It implies Tesla stock would have to fall another 42% to $96.50 to trade in line with its peers in the tech sector. I'm not saying that will happen -- Tesla stock has always commanded a premium because of its long-term potential -- but it might be a good reason to avoid the stock in the short term.

After all, most of the catalysts that could reignite Tesla's growth still appear to be years away.