Tesla Stock Plummets Nearly 20% This Year: Is It Now a Good Value Buy?

London:  View from the street  of modern Tesla Motors showroom with multiple luxury Tesla cars inside at sunset in central London.
AdrianHancu / Getty Images

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Tesla, the electric vehicle (EV) pioneer, has encountered a challenging start to 2024, with its stock price experiencing a nearly 20% decline since the beginning of the year. This downturn contrasts sharply with the broader market, as the S&P 500 has seen a 5% increase over the same period. Several factors contribute to Tesla’s current predicament, including a slowdown in EV demand, disappointing financial results for the fourth quarter of 2023, and intensifying competition in the EV market.

Slowing Growth and Profitability Concerns

The final quarter of 2023 saw Tesla’s revenue growth decelerate to a mere 3.5% year-over-year, totaling $25.2 billion. This slowdown is particularly notable given the company’s previous track record of robust growth. Compounding the issue, Tesla’s profitability has been squeezed by aggressive price cuts, which have negatively impacted its margins. The average selling price of a Tesla vehicle has decreased to $44,500 in Q4, down from over $52,000 in the same quarter of the previous year. Consequently, Tesla’s gross margins have declined by 610 basis points year-over-year to 17.6%, while its operating margins have nearly halved to 8.2%.

Mounting Competition and Aging Lineup

Tesla is facing increasing competition from both traditional automakers and new entrants to the EV market. The company’s vehicle lineup, including the Model 3, Y, X, and S, has remained largely unchanged visually since their respective launches, in contrast to traditional automakers who typically refresh their models every six to seven years. Additionally, Tesla has relinquished its position as the world’s largest EV maker to China’s BYD in 2023.

Mixed Near-Term Outlook

The outlook for Tesla in the near term is mixed. The company has indicated that sales growth in 2024 will be significantly lower due to slowing consumer demand and high interest rates, which make financing EV purchases more expensive. Furthermore, Tesla had to suspend production in Germany for two weeks in late January due to parts shortages caused by shipping delays via the Red Sea. Recent price cuts in China and Europe could further erode margins.

Reasons for Optimism

Despite the challenges, there are reasons for optimism about Tesla’s long-term prospects. The company remains a key player in the transition to cleaner transportation and energy generation, thanks to its advanced battery and drivetrain technology, as well as its leadership in software and self-driving technology. Tesla’s plans to manufacture a mass-market vehicle, likely a compact crossover, by the end of 2025 could drive growth in the long run. Additionally, the recent launch of a mildly refreshed Model 3 and the introduction of the Cybertruck pickup truck could provide a near-term boost.

Conclusion: Is Tesla a Good Value Buy?

Investors may wonder whether Tesla’s stock is now a good value buy given the recent decline. While the near-term outlook presents uncertainties, Tesla’s long-term growth potential remains intact. For long-term investors who believe in the company’s ability to navigate through the current headwinds and capitalize on the ongoing shift towards sustainable transportation, Tesla’s stock could still offer value at its current price level.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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