Dark clouds have been gathering over Tesla (NASDAQ: TSLA) stock recently. Global electric vehicle (EV) sales have slowed, profit margins have been squeezed, and there is economic malaise in China, the world’s largest EV market.
Still, investors who’d held the stock over the last five years would be up by more than 950%!
But what about somebody who’d invested £10k in Tesla shares only six months ago? How would this investor be doing?
I’d be down
The share price was at $260 six months ago. As I write, it’s now at $209, which represents a decline of 19.5%.
This means I’d currently be down by around £1,950. In other words, my £10,000 investment would now be worth approximately £8,050.
However, it’s important to remember that this would merely represent a paper loss. I’d only crystallise this into an actual loss if I were to sell my shares for less than I paid for them.
Margin pressure
The share price is down about 15% in 2024 alone. This is the stock’s worst ever start to any year, which sounds kind of dramatic until we remember that it has only been around since 2010.
The company is scheduled to report its Q4 financial results today (24 January). But we already know the quarterly and annual production and delivery numbers.
During the fourth quarter, Tesla produced approximately 495,000 vehicles and delivered over 484,000. And for 2023, deliveries grew 38% year on year to 1.81m while production grew 35% to a record 1.85m.
In my eyes, this was exceptional growth considering the fragile global economy and intensifying competition. However, the thing that investors will want to know today is whether Musk plans further vehicle price cuts in 2024 to stoke demand.
If so, then auto gross margins could fall further from the current 18% or so. For context, they peaked at 30% at the end of 2021. This profit margin contraction is reflected in the stock, which is also down by nearly 50% since late 2021.
Valuation
Despite its recent pullback, the stock is still trading at 60 times earnings. And Tesla’s monster market cap of $655bn means it remains by far the most valuable car manufacturer in the world.
This lofty multiple suggests the company is largely being valued on its promise around full self-driving software and robotaxis. The market is still giving it the benefit of the doubt for now, but with the global EV market in its first ever cyclical downturn, there are worries that Tesla’s growth could stall this year.
If management offers weak guidance today, then I fear the stock could get hit quite badly.
A vast data advantage
Due to this economic uncertainty, many legacy automakers have scaled back EV plans. But Tesla is ploughing on, with reports saying it wants to start production of a new mass-market EV next year.
Meanwhile, some Tesla drivers have just had the latest (version 12) Autopilot software downloaded into their vehicles. Looking at yesterday’s YouTube uploads, this self-driving AI appears to be significantly improved. I find it incredible, in fact.
Because the firm is using its customers’ cars to continuously gather information, the data advantage it has built is truly immense. If the stock falls further, I’m going to increase my position.
