Tesla (NASDAQ:TSLA) is not joining the rally in electric vehicle (EV) stocks. Shares of TSLA stock opened down by 3% on Dec. 5. Now, the company is down more than 50% year-to-date (YTD) as investors worry about growing competition and CEO Elon Musk’s obsession with Twitter.
These concerns come despite Tesla shipping more than 100,000 vehicles from its Shanghai plant in November. The company continues to lead the highly competitive Chinese EV market.
But there’s trouble in paradise. Let’s dive into what investors should know.
TSLA Stock: Rise of the Mid Market
While Tesla dominates the luxury electric vehicle market, its least-expensive car still sells for around $46,000. That price is being undercut.
BYD (OTCMKTS:BYDDY) now dominates the mid market for EVs in China. While Tesla still leads in total sales, BYD — famously backed by Warren Buffett of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) — is growing faster.
This is something I have been writing about for years. As the market broadens, affordability matters. To put an American analogy to it, you want to be a Ford, not a Lincoln. BYD is only now starting to export to Europe, where it’s undercutting Tesla on price.
Tesla may even have to worry about General Motors (NYSE:GM), which has a joint venture with Chinese state-owned SAIC and helps produce the Hongguang Mini. The Mini costs around $5,000 domestically and could become the next Volkswagen (OTCMKTS:VWAGY) Beetle. And VW is also anxious to make mass-market electrics for less than Tesla.
When Musk launched Tesla’s mass production in the last decade, he promised to deliver cars profitably, at a mass market price of $35,000. As with many of Musk’s recent promises, including the “hyperloop,” this promise has gone unfulfilled. The only new car due from Tesla next year is the huge, butt ugly Cybertruck, which faces competition from Ford (NYSE:F), GM and Rivian (NASDAQ:RIVN).
What Happens Next?
Investors buy tomorrow, not yesterday. Tesla has a credibility problem.
Tesla does retain advantages. It still leads in China, it still leads in batteries and it has factories churning out product on three continents.
But the industry posse is now hot on its heels. Meanwhile, TSLA stock still sells for 53 times earnings, 8 times sales and about triple the market capitalization of Toyota (NYSE:TM), which was previously the most valuable automaker.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
