Why Does Tesla (TSLA) Stock Keep Falling?

  • Tesla (TSLA) continues to fall on rumors of decreasing demand.
  • The company is still valued at 9 times sales thanks to high growth and margins.
  • If those disappear, there’s a long way to fall for TSLA stock.
TSLA stock - Why Does Tesla (TSLA) Stock Keep Falling?

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Tesla (NASDAQ:TSLA) CEO Elon Musk briefly ceased to be the world’s richest man on Dec. 7 as TSLA stock continued to fall. According to Forbes, the temporary new champion of wealth is Bernard Arnault, whose family controls LVMH (OTCMKTS:LVMUY), the luxury goods conglomerate.

The value of Tesla is now down 24% just since Musk bought Twitter. Investors are asking whether this a coincidence or the start of a harder fall. Tesla currently trades around $170 per share with a market capitalization of $538 billion.

The Tesla Slowdown

Tesla’s problems start in China, where the company has decided to delay hiring and shorten shifts at its Shanghai plant, which is its most productive site. The country has also reportedly cut prices in China.

One analyst says Tesla is also offering $3,750 in incentives to U.S. consumers who buy the car this month. Tesla “increasingly appears to have a demand issue,” the analyst concluded.

If Tesla is becoming “just another car company,” the stock’s troubles may be just beginning. That’s because other car stocks like General Motors (NYSE:GM) and Toyota Motor (NYSE:TM) sell at a discount to their sales. Tesla, even at its present low, sells for 9 times its sales.

The reason is clear in the firms’ most recent quarterly financials. Tesla saw 15% of revenue become net income, and revenues grew 56% year over year in the third quarter. Toyota had 7.7% of revenue become net income with sales growth of 14.4%. GM’s net income was 7.9% of revenue, with year-over-year growth of 56%.

If Tesla’s sales growth and margins are falling into line with those of other car makers, so should its valuation. After-market revenue, including software updates, and the fact the cars seem to sell themselves are why Tesla is valued more like Microsoft (NASDAQ:MSFT), which also sells for 9 times sales.

What Happens Next for TSLA Stock?

Tesla isn’t due to report earnings again until Jan. 25. The last time it reported in October, it pointed to a huge inventory of finished cars at the Shanghai docks, seen as a harbinger of future growth. If they’re seen as an albatross, as they would be for GM, there’s a long, long way to fall.

On the date of publication, Dana Blankenhorn held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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