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Shockingly low<\/a>\u00a0quarterly sales figures from Tesla<\/a> Inc. this week are raising a fundamental question for investors: If the days of breakneck growth are over, what are the shares of\u00a0Elon Musk\u2019s company really worth?<\/p>\n The concerns are valid. The number of cars Tesla sold in the first quarter missed Wall Street\u2019s expectations by such a wide margin that it\u2019s worth wondering how much of the electric vehicle giant\u2019s demand problem is baked into the lofty expectations for its\u00a0revenue and earnings growth\u00a0over the next few years.<\/p>\n \u201cThere is not a lot of visibility on where Tesla\u2019s next leg of growth will be \u2014 whether EVs or its other projects,\u201d said\u00a0Nicholas Colas, co-founder of DataTrek Research. \u201cIf you are going to command a premium multiple you will have to have great earnings visibility or a fantastic story on why those earnings will show up in the future. Tesla has neither at the moment.\u201d<\/p>\n The growth issue around Tesla has become so sensitive, that a\u00a0report<\/a>\u00a0on Friday saying the company was getting rid of its low-cost EV plans \u2014 which were considered key to fixing its demand problem \u2014 sent the stock\u00a0tumbling more than 6%. Musk rushed to\u00a0refute the story<\/a>\u00a0in a post on his social media site, X<\/a>, which erased roughly half the decline but still left it as the\u00a0heaviest weight\u00a0on the S&P 500 for the session. Then after the market closed, Musk posted on X that the company will\u00a0unveil its \u201crobotaxi\u201d<\/a>\u00a0on Aug. 8, causing a rally in after-hours trading.<\/p>\n \u201cTesla needs a $25,000 compact vehicle as a flanker product to compete with the many $25,000 EVs being launched,\u201d said\u00a0Gary Black, co-founder of Future Fund Advisors. \u201cDoubling down on a robotaxi vehicle at this point would be incredibly risky.\u201d<\/p>\n All of which helps explain why Tesla\u2019s stock has struggled so much this year. Its 34% plunge makes it by far the biggest drag on the Nasdaq<\/a> 100 Index since the start of January, and the\u00a0worst performer<\/a>\u00a0on the S&P 500 Index. About 76% of the company\u2019s current valuation is still predicated on its future earnings potential, according to a DataTrek analysis. Over the past year, shares have fallen 11%.<\/p>\n \u201cWe caution Tesla shares could fall much further still should the company not be successful in quickly restoring unit volume and revenue growth,\u201d JPMorgan analyst\u00a0Ryan Brinkman\u00a0wrote in a note to clients on Wednesday, pointing out the risk to Tesla\u2019s stock market capitalization if it\u2019s no longer perceived as a hyper-growth company.<\/p>\n Tesla sold about 387,000 cars in the first quarter, while analysts on average thought that number would be around 449,000. Obviously,\u00a0profit estimates\u00a0for the quarter will now have to be cut, after already dropping by more than half in a year. It also puts the company on track for a second straight year of declining annual earnings. In fact, analysts on average now expect that it will take until 2026 for Tesla to exceed the level of profitability it posted in 2022.<\/p>\n That, however, does not mean the shares are cheap. At 59 times forward earnings, Tesla\u2019s the most expensive member of the Magnificent 7 group of big tech companies. High-flier\u00a0Nvidia<\/a> Corp.\u00a0trades at a multiple of around 36, and\u00a0Amazon<\/a>.com Inc.\u00a0is at 45. Yet, Tesla has the lowest growth estimates of the three for this year. And its stock is the\u00a0biggest decliner\u00a0in the Bloomberg Magnificent 7 Price Return Index in 2024.<\/p>\n Brinkman believes there\u2019s a decent chance that Tesla\u2019s revenue drops materially in the first quarter, \u201clikely causing even the most bullish investors to take a sentiment check.\u201d Analysts on average expect a slight decline of around 0.6%, according to data compiled by Bloomberg.<\/p>\n Despite Wall Street\u2019s seeming surprise over Tesla\u2019s troubles, no one should complain they weren\u2019t warned. Tesla\u00a0first noted<\/a>\u00a0the weakening pace of demand in October last year. But the reaction shows how few people fully grasped the speed of the deceleration.<\/p>\n \u201cAnalysts knew that EV growth was waning, but the extent at which it would impact sales was misunderstood on Wall Street last quarter,\u201d\u00a0Adam Sarhan, founder and CEO of 50 Park Investments, said in an interview.<\/p>\n With all of this being said, Tesla shares could rebound in the short term as dip buyers start sniffing around. They closed at $164.90 on Friday after trading as low as $160.51 when the news of the low-cost vehicles first hit. Chart technicians, who analyze stock moves to spot such reversals in trends, say the shares appear to be finding a near-term bottom. In other words, the most intense part of the selloff may be done \u2014 at least for now.<\/p>\n \u201cAs long as the stock stays above $150-$160 area, technically, it is trying to trace out a bottom,\u201d 50 Park\u2019s Sarhan said.<\/p>\n Read more: Tesla Shares Tumble Toward Make-or-Break Level in Latest Wipeout<\/a><\/p>\n But the company will have to show more for the stock price to have a sustained recovery. Investors need to be convinced that Tesla can return to its strong growth, fat margins and highly innovative ways. Right now the story is shrinking demand and a shaky outlook, which cuts to the heart of the company\u2019s towering stock market valuation.<\/p>\n \u201cIt is challenging to call a bottom at this stage because there is not a true catalyst on the horizon,\u201d said David Mazza, chief strategy officer at Roundhill Investments. Stemming the bleed in the shares will require Tesla to pull a \u201cproverbial rabbit out the hat,\u201d he said.<\/p>\n \u201cIt looks like Musk is trying to do just that with his latest X post on the robotaxi,\u201d Mazza said. \u201cBut unless the company shares specific news on shoring up the core EV franchise, the impact may be illusionary.\u201d<\/p>\n<\/div>\n\nSales Shock<\/h3>\n
Potential Rebound<\/h3>\n
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