Tesla CEO Elon Musk. Maya Hitiji—Getty Images
Tesla is no longer a hot growth stock. CEO Elon Musk said the same thing.
But even by that new standard, the bleak sales forecast from Tesla's top analysts on Wednesday was still shocking as Wall Street's growth forecasts have plummeted. Wells Fargo's Colin Langan said electric car makers will sell zero cars this year. And he will get even worse in 2025, and sales volumes will decline.
The company's stock reacted appropriately, falling 4.5% on Wednesday to close at a 10-month low of $169.5. The stock has fallen 32% since the beginning of the year, missing out on the broader rally that lifted the S&P 500 index by 8.3%.
The reason is obvious. Tesla's ability to grow at the breakneck pace promised by its lofty valuation is no longer guaranteed. The company still trades at a significantly higher multiple than other mega-cap high flyers, but the pace of sales and earnings growth has slowed significantly compared to last year.
“Right now, the market is voting and we don't think Tesla deserves that high of a valuation right now,” Adam Sirhan, founder and CEO of 50 Park Investments, said in an interview. That's what they're telling us,” he said. “Sellers are in control for now and we need a bullish catalyst to get the market excited.”
It comes after disappointing numbers from China, data from European countries and production disruptions at a factory near Berlin meant first-quarter deliveries were below analysts' average expectations. Wall Street has been loudly sounding the alarm on Tesla since early March.
Mr. Musk's response to lower prices to boost demand is also losing its edge.
Wells Fargo's Mr. Langan downgraded the company's stock to the equivalent of a “sell” on Wednesday, the latest to point to the company's slowing growth in its core markets.
Langan wrote in a note to clients that the company is now a “growth company without growth.” He emphasized that sales volumes in the second half of 2023 increased by only 3% compared to the first half, and prices fell by 5%. Tesla has repeatedly lowered prices in China since late 2022, sparking an international price war.
Problems with Tesla and electric vehicles began to surface more broadly in mid-October, when Mr. Musk's company first warned of a slowdown in demand. However, sentiment worsened further in early January after Tesla announced that its growth rate would be “significantly lower” this year. Other automakers, EV suppliers and even rental car companies weighed in with similarly cautious comments.
Tesla stock, a pure EV company with an eye-wateringly high valuation, has taken a serious hit as weak EV demand poses challenges for all car companies.
Tesla's plunge this year has wiped out more than $245 billion from its market capitalization and removed it from the S&P 500's list of top 10 companies. It also lost Musk's status as the world's richest person – he now ranks third behind Bernard Arnault and Jeff Bezos.
Despite the decline, the company's stock still trades at about 55 times forward earnings, compared with an average of about 31 times the Bloomberg Magnificent 7 Price Return Index.
Wells Fargo's Langan pointed out the discrepancy in valuations, saying, “Tesla is a leader in EV and battery technology, but compared to its Mag7 peers, it has not been properly vetted.''
The analyst lowered the company's 2024 earnings forecast to $2.40 per share from $2.40 per share. That compares with analysts' average annual forecast of $3.03 per share, according to data compiled by Bloomberg.
“Tesla has been investing heavily in the electrification of the world's automotive fleet, which has been one of the market's favorite narratives for years,” said David Wagner, portfolio manager at Aptus Capital Advisors. . “Right now, the popular narrative in the market is about artificial intelligence, and ESG has taken a bit of an afterthought. Therefore, historical valuation premiums are no longer justified, especially as future revenue growth and profit margins are slowing. It may disappear.”
