Tesla TSLA stock fell to its lowest levels since May on Oct. 30, tumbling nearly 5% to below $200 per share. The decline follows a string of losses since Tesla reported disappointing quarterly earnings results on Oct. 18.
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Tesla faces a growing list of concerns
There's little doubt that the electric vehicle market represents a massive market opportunity for Tesla. According to Cox Automotive's Kelley Blue Book, electric vehicle sales rose nearly 50% in the third quarter, a rate that was far faster than total vehicle sales. As a result, electric vehicles represent about 8% of all vehicles sold in the United States, up from about 6% a year ago.
Electric vehicle sales strength hasn't gone unnoticed by the auto industry, given most manufacturers are launching new EV models. The growing availability of EVs is a good thing for consumers. However, more models mean Tesla is facing more competition than ever before.
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It's arguably already seeing that competition cut into its business. In Q3, sales of Tesla's high-end Model S and Model X slipped from one year ago, while Mercedes-Benz MBGAF saw its EV vehicle sales surge higher. Overall, Tesla's EV market share fell to 50% in the third quarter, down from over 60% last year.
Competition won't get easier following contract agreements between striking United Auto Workers and General Motors GM, Ford Motor Company F, and Stellantis STLA. The auto strike had been a headwind to their EV efforts.
The growing risk associated with increasing EV competition is one reason why Tesla's shares fell on Monday. Battery supplier Panasonic PCRFY reported a loss for the first time in three quarters, citing declining demand for batteries used in Model S and Model X.
The supplier's admission adds to a growing list of concerns about Tesla this year, including the worry that the highly-anticipated Cybertruck will be a drag on profit for longer than expected, the Department of Justice's investigation into Tesla's EV mileage claims could lead to penalties, and higher interest rates could sap demand, causing profit unfriendly price cuts.
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The potential headwinds are weighing on Wall Street analyst's optimism. The consensus full-year earnings per share forecast for 2024 has fallen to $3.75 from $4.17 over the past 90 days.
The sell-side research firm Bernstein issued a report on Oct. 30 saying Tesla's margin and vehicle sales could disappoint next year.
"To drive growth of 500,000 units this year, Tesla had to cut prices by ~16%, pressuring overall operating margins by 750 bps," wrote Bernstein's Toni Sacconaghi, Jr. "It remains unclear if Tesla can further cut prices enough to drive sufficient demand elasticity without potentially becoming negative."
If Tesla can't kickstart sales with price cuts, it could see revenue and profit retreat, a double-edged sword that likely has some investors rethinking how much of a premium valuation they're willing to pay to own shares.
