STLA - Tesla Is No Longer A Growth Stock Even Though It's Valued Like One

2024-04-08 09:15:00 ET

Summary

• Intense competition will likely continue to erode Tesla, Inc.'s market position and already mediocre margins.
• It does not have a core competency in battery production and it relies on third parties for this crucial component of an EV.
• Its charging network is not a moat, and it can't be a source of excess profits. It will likely only deliver a fair rate of return.
• Even if the FSD Supervised updated software allows for faster AI Training and a robotaxi in August, Tesla is still 7-years behind the market leader, and it has nothing special to bring to the table. It likely won't be a home run.
• Despite the recent selloff, Tesla stock is still overpriced.

Tesla, Inc. (TSLA) recently reported disappointing vehicle delivery figures for Q1 2024. Not only did it badly miss the consensus of analyst estimates (449,000), but deliveries were also lower than the previous quarter. Some of this drop might be explainable by seasonality, as the first quarter is always the weakest quarter for sales in China due to the Chinese New Year holiday. Crucially however, sales were also lower by 36,000 vehicles compared to the same quarter in 2023, which also included that holiday, and which occurred when China still had Covid lockdowns in many cities.

Table 1: Tesla – Number of Vehicles Delivered

There have been disappointments such as this before that have caused temporary drops in the stock price, and maybe these weak numbers are partially explainable by short term factors such as the discontinuation of consumer subsidies in key European markets. That said, there clearly is a lot of anxiety surrounding the stock. On April 5, a Reuters story stated that Tesla was halting the development of its $25,000 Model 2 car, and its stock dropped 4%. A few hours later, CEO Elon Musk tweeted that Reuters was lying, and Tesla subsequently announced that it would have a robotaxi rolled out by August 2024. This was met with skepticism, because Elon Musk has previously stated on several occasions that such a step was imminent, only for these promises to not be kept....

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