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Tesla Stock Slumps: A Temporary Setback or Deeper Issues at Play?

On Thursday, January 2, Tesla's stock took a significant hit after the electric vehicle maker reported fourth-quarter deliveries that fell short of expectations. The stock initially dropped over 7% at the market's opening following the news, and ultimately closed the day with a decline of more than 6%. This downturn wiped out more than $70 billion in market value for Tesla.

Tesla's Q4 Delivery Shortfall

$Tesla Motors(TSLA)$   reported its vehicle production and delivery figures for the full year and fourth quarter of 2024 on Thursday. The data showed that in the fourth quarter, Tesla delivered 495,570 vehicles, setting a new quarterly record with a year-over-year growth of 2.3%. However, this figure fell below the consensus analyst forecasts - FactSet data had previously shown analysts predicting deliveries of 498,000 vehicles.

Breaking it down, deliveries for the Model 3 and Model Y reached 471,930 units, while other models contributed an additional 23,640 deliveries. In terms of production, approximately 437,000 Model 3 and Model Y vehicles were manufactured, alongside around 22,727 units of other models.

For the full year, Tesla delivered 1.79 million vehicles, reflecting a 1.1% decline from the 1.81 million units delivered in 2023. This marks the first decline in the company's annual sales since 2015. Additionally, according to FactSet, Tesla's average transaction prices have fallen to their lowest levels in the past four years.

Factors Influencing Tesla's Sales

Tesla is navigating an increasingly competitive landscape, with companies like Hyundai, BYD, and traditional automakers actively enhancing their electric vehicle (EV) offerings. This growing competition is putting pressure on Tesla, particularly given its aging lineup. China's leading EV company, BYD, has outpaced Tesla's growth. In the fourth quarter, BYD sold 595,413 fully electric battery vehicles, culminating in 1.76 million units and placing itself just slightly behind Tesla in terms of full-year 2024 sales.

In the U.S., while Tesla maintains a dominant position in the North American market, it faces challenges with inventory build-up. Most early technology adopters have already embraced electric vehicles, yet mainstream consumers express concerns about range, pricing, and charging infrastructure for longer journeys.

In response, Tesla executives have announced plans for "affordable" models set to arrive in 2025. During the third-quarter earnings call in October 2024, CEO Elon Musk confirmed that the company was on track to launch these models in the first half of 2025, a sentiment also expressed during the Q2 call. Recent reports suggested the introduction of a low-cost Model Q, expected to debut in the first half of 2025 with a price under $30,000 when factoring in the federal EV tax credit, or $37,500 without it. Additionally, Tesla is anticipated to refresh its existing Model Y in 2025. These initiatives are part of Tesla's broader strategy to strengthen its competitiveness in the rapidly evolving EV market.

Reflecting on Tesla's 2024 Performance

In 2024, Tesla faced a series of challenges, including an arson incident at its Berlin factory, disruptions in shipping routes, and a broader deceleration in electric vehicle sales industry-wide. In April, the company announced a global workforce reduction of over 10% to cut costs and boost productivity. Despite these hurdles, Tesla still projected modest growth in vehicle deliveries for the year and informed investors that demand for its electric vehicles was situated between two significant growth phases.

Notably, Tesla's stock price surged by 63% in 2024. This increase was primarily driven by investors shifting their focus from the decelerating core EV business to the promising potential of Tesla's autonomous driving technology. Additionally, following Donald Trump's election as President of the United States on November 5, Tesla's stock experienced a dramatic rise from $242.84 to $403.84 in just two months. The close relationship between Tesla CEO Elon Musk and President-elect Trump suggested that Tesla might benefit from a more favorable regulatory landscape under the new administration, positioning the company as a "Trump beneficiary stock."

Analysts' Views on Tesla

Adam Jonas, an analyst at Morgan Stanley, noted that Tesla's shortfall in Q4 deliveries reflects the challenge of an aging product lineup and the intensified global availability of lower-priced competition ahead of the "hyped" introduction of the cheaper new model, Juniper, in early to mid-2025.

However, Wedbush Analyst Dan Ives described Thursday's sales figures as "respectable" and attributed the stock's weakness to a knee-jerk reaction. He expressed strong confidence in Tesla's potential to accelerate delivery growth as it moves into fiscal year 2025. Furthermore, the expected launch of a lower-priced electric vehicle in 2025 is seen as a potential catalyst for increasing vehicle deliveries.

Sam Fiorani, Vice President of AutoForecast Solutions, suggested that Elon Musk's political involvement "distracted him from Tesla's core business." He noted that the impact on investor confidence or consumer choices in the electric vehicle market would become clearer with data released in the first quarter of 2025. Meanwhile, Stifel is awaiting details on automotive margins in this upcoming earnings release in January, which will provide insights into pricing and discounts.

Tesla is set to announce its Q4 earnings on January 29, with Wall Street's consensus forecasts indicating mixed results - a record $99.7 billion in revenue alongside an $8.1 billion net profit, which could represent the weakest quarterly profit since 2021. Nonetheless, Morgan Stanley analyst Adam Jonas highlighted positive aspects from the Q4 update, including a significant increase in energy storage system deployment and a reduction in inventory days' supply by six to seven days.

Tesla's Long-Term Vision

Tesla, originally an electric vehicle manufacturer, has diversified into sectors such as renewables, autonomous driving, and AI-driven technologies. Analysts have commented that while not all ventures may match the success of the EV business, even a few breakthroughs could substantially benefit its shareholders.

In renewables, Tesla offers comprehensive solutions for energy independence, including solar panels and energy storage, aligning with the global shift towards sustainability. This positions Tesla at the center of a long-term megatrend.

AI investment represents another potential game-changer for Tesla, particularly in areas like autonomous vehicles and humanoid robots. Elon Musk claims that products like the humanoid robot Optimus could significantly boost Tesla's market capitalization, potentially reaching $25 trillion.

$Goldman Sachs(GS)$   analysts highlight that Tesla's long-term growth prospects are bolstered by its expanding software and services business, further enhancing its diversified growth strategy.

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