A few short months ago, I didn’t think I’d be writing a headline like this. But it’s been a terrible week for Tesla (NASDAQ:TSLA) stock, pummelled by falling European sales figures released on Tuesday.
Tesla soared as high as $488 in December on the back of CEO Elon Musk’s association with the then-President elect Donald Trump. Since then, it’s lost more than 40% as Musk’s personal popularity has waned. Tesla’s market capitalisation fell below $1trn for the first time since November.
Losing the EV edge
The pounding continued after Tesla reported a 45% January sales fall across European markets. That’s perhaps not as bad as it sounds though, with electric vehicle (EV) sales down 37% overall.
But with competition hotting up, it looks increasingly like Tesla has lost any first-mover advantage it once had. That’s actually in car sales, at least. Vehicles from Chinese manufacturer BYD are growing in popularity, as they typically offer more features for less money.
But some do seem to be turning away from the brand due to Musk’s political activity. Former Tesla director Peter Bardenfleth-Hansen told the BBC that “he may be getting a bigger fanbase within a specific type of clientele, but they’re not the ones that are buying the Teslas.”
Are the golden days over, and should shareholders cut and run? I think a knee-jerk reaction like that could be a mistake. ‘Father of Value Investing’ Benjamin Graham pointed out that markets follow prevailing sentiment in the short term. But in the long term, they weigh up the actual fundamentals. Might it instead be a good time to buy?
Defining the robot-driven future
The attraction of Tesla for me isn’t in sales of the cars. It’s more about the technology the company’s developing. It starts with battery and charging technology, which has set global standards.
It extends to future developments including fully self-driving vehicles. The robotaxi business has been making the headlines. But imagine a time when driving tests are history and the cars do all the work. AI-driven optimal route planning, no more speeding tickets, maybe even no more road accidents… the day will surely come.
Tesla spent around $5bn on AI reseach in 2024 and has plans for about the same this year. Most ‘Magnificent 7’ AI spend seems to be piling into data centres for running large language models. But Tesla, while also needing AI for data processing, is focused on self-driving and robotic autonomy.
The hard question
Is the stock worth today’s valuation? Forecasts put the price-to-earnings (P/E) ratio up at over 100. I know plenty of techie growth stocks have commanded higher valuations in the past and have gone on to winning ways.
But I’ve no clue where Tesla might be this time next year, never mind in five years’ time. And I think the price could have a fair bit more to fall before it recovers. It’s all enough to keep me away.
But I think growth investors with long-term horizons might be making a mistake if they don’t even consider Tesla right now.
