TLDR
- Tesla’s stock has fallen 45% in three months, erasing most post-election gains
- Despite the drop, Tesla still trades at much higher valuations than other automakers
- Tesla’s China sales have declined for five consecutive months, with February shipments down 49%
- BYD has overtaken Tesla as the world’s top EV seller, offering cheaper vehicles with comparable features
- Most of Tesla’s market value is based on future products like robotaxis and robots rather than its current EV business
Tesla’s stock has experienced a dramatic decline in recent months, losing nearly half of its value since reaching an all-time high in December.
The electric vehicle maker’s market capitalization has dropped 45% since hitting $1.5 trillion on December 17.
This decline has erased most of the gains the stock made after CEO Elon Musk helped finance Donald Trump’s election victory.
Despite this sharp drop, Tesla still maintains a valuation far above those of the world’s biggest automotive and technology firms based on standard financial metrics.
Most investors and analysts have accepted Musk’s pitch that Tesla isn’t primarily a car company.
Instead, they view it as an artificial-intelligence pioneer that will soon revolutionize transportation with robotaxis and humanoid robots.
According to analyses from various banks and investment firms, Tesla’s electric-vehicle business accounts for almost all of its revenue but less than a quarter of its stock-market value.
The bulk of Tesla’s worth rests on hopes for autonomous vehicles that haven’t yet been delivered.
This is despite Musk’s promises every year since 2016 that driverless Teslas would arrive by the following year.
The stock’s recent decline stems from falling vehicle sales, decreasing profits, and protests over Musk’s political activities.
Investors concerned that Musk’s new role might be distracting
Investors are also concerned that Musk’s role as a senior Trump advisor might be distracting him from managing Tesla.
Even with the decline, Tesla’s market value of $845 billion still tops the next nine most-valuable major automakers combined.
These competitors collectively sold about 44 million cars last year, compared to Tesla’s 1.8 million.
The gap between Tesla’s real-world performance and analysts’ earnings estimates for future products has prompted some to question the company’s valuation.
Tesla’s business in China, the world’s largest EV market, has been declining for five consecutive months.
February shipments plunged 49% year-over-year to just 30,688 vehicles, the lowest monthly figure since July 2022.
While some of this decline can be attributed to production line retooling, the trend was heading downward even before that.
BYD, a Chinese automaker, has become Tesla’s main competitor globally.
BYD stopped making purely gas-powered vehicles in March 2022 and now has a market share in China approaching 15%.
In February, BYD sold more than 318,000 fully electric and hybrid passenger vehicles, up 161% from the previous year.
Tesla’s market share in China has fallen to 2.6%, the lowest in 12 months.
Analysts at Morgan Stanley expect Tesla’s China exposure “to continue to fall systematically” from 21% of total revenues in 2024 to around 6-7% by 2030.
Price is a major factor in BYD’s success against Tesla.
While Tesla’s Model Y and Model 3 still cost around $33,500 on average in China, BYD’s best-selling model, the Song Plus, retails for around $21,000.
Another popular BYD model, the Seagull, costs just $9,900 on average.
Chinese carmakers have also improved their software offerings with features tailored to domestic driving conditions.
BYD has announced plans to include its advanced driver-assistance technology, called God’s Eye, in even its cheapest cars.
Tesla has responded by enabling driver-assistance capabilities in China similar to its Full Self-Driving system in the US.
However, the software costs an additional 64,000 yuan ($8,800), which is almost as much as an entire BYD car.
For Tesla to regain ground in China, it may need to recalibrate its pricing strategies for both vehicles and software features.
Offering tiered packages or subscription options for its driver-assistance functions could make its EVs more appealing to Chinese consumers.
Tesla might also benefit from integrating more locally sourced components and leveraging China’s robust supply chain.
Outside of China, Tesla faces other challenges.
Sales in European markets falling sharply
Sales in European markets have declined sharply this year following Musk’s embrace of far-right political movements there.
In Germany, Tesla sales plunged 76% to only 1,429 cars last month, even as overall EV registrations increased.
Tesla now faces additional headwinds from the president Musk helped elect.
Trump has been a frequent critic of electric vehicles and has called for scrapping EV subsidies and policies that have added billions to Tesla’s bottom line.
Musk has dismissed the impact of losing subsidies on Tesla, claiming that rivals would suffer more.
When Tesla reported a 20% drop in annual operating profit in January, analysts focused not on financials but on Musk’s promises of “autonomous ride-hailing” in Austin, Texas, by June.
Despite all these challenges, Tesla still trades at huge premiums compared to other automakers.
Its forward price-to-earnings ratio is more than nine times the average of the next 25 most-valuable automakers.
It’s also more than double or triple those of tech giants like Nvidia, Apple, Meta Platforms, Alphabet, Amazon, and Microsoft.
Bulls argue that standard financial metrics don’t apply to Tesla because Musk is uniquely capable of leading a transportation revolution.
Various analyst models attribute only a small portion of Tesla’s value to its current car sales business.
Instead, they assign the majority of Tesla’s worth to future ventures like robotaxis, self-driving technology licensing, and humanoid robots.
One investor, Ark Investment Management, projects the stock will hit $2,600 by 2029, with robotaxis accounting for 88% of the company’s value.
Critics are skeptical of these projections
Some argue that Tesla’s approach to robotaxis, which relies solely on cameras and AI rather than multiple technologies like radar and lidar, “does not work safely and never will.”
As competition intensifies and Tesla’s core EV business struggles, the coming months will be crucial for the company.
The success or failure of Musk’s promised robotaxi launch in June could have major implications for Tesla’s stock value and future direction.
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