It hasn't been a fun ride for shareholders of Tesla (TSLA 15.31%) recently. The stock is down 31% in 2024 (as of this writing). That seriously lags the 7% gain of the Nasdaq Composite Index.
The pessimism has been propelled by disappointing production figures. In the first quarter this year, Tesla unit deliveries fell 8.5% year over year to 387,000. This was substantially less than what analysts were hoping for from the top producer of electric vehicles (EVs).
Should investors buy this leading EV stock while it's currently 58% below its all-time high? Let's consider both the bull and bear arguments for Tesla.
Why you should buy Tesla stock
Tesla's strongest bulls won't find any shortage of reasons to own the stock. Because shares have been so hammered, these investors could view the current valuation as an attractive entry point.
The stock's price-to-earnings (P/E) ratio of 39.8 is significantly lower than it was at the start of this year. Some might think this is too good an opportunity to pass up.
It's true that Tesla has hit a bit of a rough patch; sales were up by just 3.5% in the fourth quarter and margins are getting crushed. Bulls think this is merely a speed bump. Tesla is a global leader in the EV industry, so over the long term, it should benefit from the tailwind of a greater push toward sustainability. And once interest rates start declining again, demand for these cars will pick back up.
I also believe Tesla supporters are focused on the company's greater ambitions. Elon Musk hopes to introduce full self-driving capabilities one day, with plans to launch a fleet of robotaxis that could earn high-margin revenue for the business.
Tesla could also become a major player in the robotics space and the energy sector, which could become huge revenue drivers far into the future.
Why you should sell Tesla stock
On the other hand, I believe Tesla's current challenges are providing fuel for the bears. It's not hard to believe that the company's struggles are more permanent in nature.
Compared to even five years ago, it is facing intense competition from traditional automakers investing aggressively in their EV divisions. There are also numerous domestic and foreign rivals focused just on EVs. Therefore, it's reasonable to assume that the company's growth will likely be much more muted compared to the past, as the industry becomes increasingly crowded.
The other effect of this is ongoing pricing pressure. Tesla's separation from the pack as a maker of superior EVs could be shrinking, limiting the company's ability to charge premium prices. We've already seen it implement numerous price cuts to stay competitive. It's not surprising, then, that margins could also face some headwinds.
Early Tesla investors loved the fact that the company was posting incredible growth. This business was acting like a typical tech enterprise, innovating in an outdated industry ripe for disruption.
But the past couple of years have clearly proved that Tesla can't escape the realities of being an auto manufacturer. This means it's very sensitive to macroeconomic factors, the most notable being changes in interest rates. So the company's financial results are likely to be cyclical.
I mentioned above how bulls could use the cheaper valuation as a reason to scoop up the stock. The flipside of that argument is that the stock could still be richly valued. The market is giving a car company a high valuation, pricing in the hope that Tesla's long-term ambitions around robotaxis, energy, and robots are a virtual certainty. But this is far from the case.
In my opinion, the negative factors hold more weight than the positive attributes. So Tesla is a business that I'm still not a buyer of right now.
