If you don’t have much time or are thinking of joining the rest of the loud-spoken fin-influencers by betting big on Tesla, I’m sorry to burst your bubble, but TSLA might go down as the biggest loser out of the current Magnificent 7 cohorts.
I know there are plenty of well-researched and well-written bullish theses on Tesla. I know, it is not just merely a car maker. There is so much untapped potential for this AI/robotics company in the making.
But like it or not, most, if not all, of Tesla’s earnings and business come from making and selling cars and trucks.
Here are some plain facts and observations that paint a tough 2024 for Tesla, which might cast this once-stock darling as a loser of 2024.
1. The EV space is slowly turning into a red sea
Even though pure BEVs are well over 10% of the overall automobile market share, which paints so much more growth runway, we have started to see some of the larger players struggling to grow their deliveries and topline in tandem.
There are easily 10 pure EV players that most of us can name. Throw in the other traditional car makers who are jumping on the bandwagon, and you easily have more than 20 competitors.
This sudden surge of EV startups and pivots from traditional ICE car makers has made the EV scene tremendously crowded.
Are Tesla cars the most good-looking? Depends as beauty is in the eye of the beholder.
Are there plenty of cheaper players and options? More than a handful from China and other companies.
Tesla’s price-slashing strategies for the last few quarters paint a subtle message that I would want to put out as plainly as possible: “Our cars are not as futuristic as it is yet as we promised, and so to continue growing our numbers, here’s a discount to buy a Tesla.”
2. Growth is hard to come by, valuation is hard to justify
Back then, with the successful investment thesis of Amazon.com Inc., many applied the same principle to Tesla: as long as revenue grows and beats estimates, profitability can be achieved easily once it reaches a certain threshold or breakeven point.
Well back then, starting and manufacturing EVs when no one else was doing so did paint a picture of how EV design and manufacturing seemed as niche as rocket science. But that perception slowly whittles away as more market participants enter the market.
Is Tesla working on something edge-breaking like self-driving? Yes, but so are the chipmakers and Mobileye.
Is Tesla working on the most efficient batteries for longer range? Yes, but so are CATL, LG and Panasonic.
I still remember 2 years back, when I was brutally condemned for sharing a piece of official news about BYD becoming the world’s largest EV maker, which back then took into consideration volumes from plug-in hybrid electric vehicles (PHEVs) as well.
Turns out I was right in the making, albeit late by 2 years, in having foresight.
So Tesla bulls, tell me why did Tesla falter, allowing BYD to finally dethrone it as the world’s largest maker of pure EVs? And what prospects does Tesla hold now? Does it still justify trading at a premium, with seemingly no intangible proprietary assets or IPs, and now playing second fiddle to BYD in terms of sales and deliveries?
3. Tesla is trapped by its size and predicament
For critical financial institutions, they come with a ‘too-big-to-fail’ tag.
For Tesla, I think it is in a ‘too-famous-to-miss estimates’ predicament.
A few years back, Tesla went on an expansion spree, building gigafactories on all major continents as it expanded beyond the US. And no one could have imagined the amount of competition and pivots that joined the EV bandwagon over the last 2-3 years.
The installed capacities and manpower coming online coincided with more and more players entering the market.
Losing out on sales not only diminishes the growth story of Tesla but also amplifies the losses on the bottom line. So in my opinion, Tesla has its hands tied, as it seems like slashing selling prices to win over an increasingly price-conscious population bodes better than having gigafactories in an idle state.
Selling cars cheaper and reporting lesser losses is always better than no sales and a bigger loss. This can be very evident in Tesla’s whipsawed margins QoQ and YoY.
My thoughts and conclusion
In their recent earnings call, Tesla announced that the production of new, affordable EV models could commence sooner than expected in early 2025. However, the exact roll-out of this is still uncertain. And those who have been following Tesla know how it tends to overpromise and delivers especially in timelines.
I do not think that Tesla has a moat as of now. It used to be the know-how of making and selling EVs.
But the brand name still holds plenty of goodwill and power. The AI and robotics catalyst has yet to surface to show any meaningful contribution to financials. And sadly, no one has a crystal ball to know when that exact moment will occur.
Elon Musk boldly said out loud, that Tesla should be valued as an AI company and not a car manufacturer. This alone could have made him a few million richer overnight when markets gaped up in an era of high growth at all costs.
With interest rates stubbornly held up high to fight inflation, eyes have turned over to the bottom line.
To put it plainly, if the AI and robotics catalyst do not pen out this year, Tesla would still just be an EV maker and seller, just like its peers and competition, with seemingly no extra edge or differentiation.
I think it’s too bold to say Tesla will be the biggest loser in the entire stock universe. But among the Magnificent 7 cohort, I would agree that it would underperform for 2024 given the headwinds it’s facing right now.
How the markets behave in the short term still befuddles me as it looks like Tesla is going to gap up tonight as I edit this.