Tesla (TSLA +0.97%) has been under a microscope this year. The big question had consistently been about what first-quarter deliveries would look like. Multiple reports suggested it could be a rocky quarter for Tesla, and analysts lowered their estimates. However, Tesla's first-quarter deliveries of just under 337,000 in the first quarter came in below Wall Street's estimates. Deliveries fell 13% year over year and came in at the lowest levels seen since 2022. Rising competition and the negative impact of Tesla CEO Elon Musk and his role with the Department of Government Efficiency (DOGE) appear to have been the main culprits. Regardless, the stock is down over 35% this year (as of April 4), but it can keep going lower. Here's why.
Feeling it from all sides
Tesla's core business is making and selling electric vehicles, and this business seems to be feeling the heat. As electric vehicle sales have seemingly been on the rise, Tesla has seen sales fall in Europe and China. Some of this can certainly be attributed to rising competition in the EV space. For instance, the Chinese electric carmaker BYD seems to be giving Tesla a run for its money. The company boasts faster charging technology and a much cheaper vehicle. In 2024, BYD sold 32% of new EV sales in China, compared to Tesla at slightly over 6%.
However, the other big elephant in the room is Musk's role with DOGE and growing outspokenness in the political arena. At first, it was difficult to gauge the impact. But analysts and top investors are increasingly convinced that Musk's role with DOGE and frequent posts about politics have played a role in the negative performance.
Data from the car shopping website Edmunds showed that Tesla owners have been trading in their Teslas for new or used cars at other dealerships at a record clip since Musk got involved with DOGE. Reports of vandalism to Tesla vehicles may also be deterring people from buying or holding onto their Teslas.
NASDAQ: TSLA
Key Data Points
Investors are very concerned at this point. Ross Gerber, an early investor in Tesla, wrote in a post on X that the "... Tesla brand is severely tainted at this point. Damage is done." Following the poor results, longtime Tesla bull Dan Ives, an analyst at Wedbush, remained bullish on Tesla long term but called what was going on a "brand tornado crisis moment."
Media reports had recently surfaced that Musk was planning to step away from his involvement with DOGE, although Musk and the White House rejected those claims hours after the initial report. Prior to running DOGE, investors often questioned whether or not Musk could balance being CEO of Tesla and running several other companies, including X (formerly Twitter) and SpaceX. These questions have grown more frequent and gotten much louder since Musk began working with DOGE and since Tesla's performance has struggled.
The stock still trades high, and the margin for error is slim
Despite everything that's happened, Tesla still trades at over 93 times forward earnings, and Tesla only grew revenue about 1% in 2024 year over year. The valuation hinges on Tesla's future initiatives, including self-driving and robotics.
Tesla is planning to launch an unsupervised self-driving service in Austin in June, where the company's self-driving technology will be used by existing Tesla vehicles. Furthermore, Tesla is planning to build 5,000 of its Optimus robots this year, which will supposedly be able to complete household chores. Still, there's a long way to go before these divisions are fully up and running and making a material impact on the company's financials. Also, who knows how strongly these technologies will be adopted and on what timeline? After all, many previously predicted that self-driving vehicles would already be ubiquitous by now.
While Tesla still has immense potential, the fact remains that its core business is struggling, while little is known about its future businesses that seem to be propping up the valuation. That's why I think Tesla stock can continue to move lower.
