With its sales slumping, margins declining, and competitive advantage deteriorating, now is not the time to buy Tesla (NASDAQ:TSLA) stock. Despite CEO Elon Musk’s cult-like following among retail investors, Tesla is not in a good position. Demand for EVs is waning, and Tesla slashed prices. This has led to declining profit margins at a critical time as Tesla faces increased global competition.
TSLA stock has traded erratically for the last year as a result, rising and falling in big one-day movements that often go against the direction of the market. Barron’s recently published an article pointing out that Tesla’s share price today is below what it was when the stock first joined the S&P 500 index in 2020.
Steep Decline in TSLA Stock
Contributing to the volatility in TSLA stock has been some truly frightening financial results from the company. In October, Tesla’s stock sold off sharply after the automaker reported third-quarter numbers that left many analyst’s jaws on the floor.
The company announced earnings per share of 66 cents and revenue of $23.4 billion. Wall Street had been looking for a profit of 70 cents a share and sales of $23.9 billion. Tesla’s profits were down 44% from the same quarter of 2022.
Perhaps worse, Tesla reported that its gross profit margin was 16.3% in Q3. That was below the 17.5% expected among analysts. Operating profit margins came in at 7.6%, down nearly 10 percentage points from a year ago.
It was a bad print by nearly every metric, and Musk sounded downbeat during his earnings call, saying: “Tesla is an incredibly capable ship, but even a great ship in a storm has challenges.”
A big issue continues to be price cuts. Tesla reduced vehicle prices by a third to boost sales amid economic slowdown and increased competition. Tesla stated that the average price of their electric vehicles is now $10,000 lower than last year.
At the same time, Tesla’s market share has nose dived and quickly. In Q3, Tesla’s market share in the U.S. stood at 50%, its lowest level on record, and down from 62% in Q1 of this year, according to data from Cox Automotive.
Supercomputers, Cybertrucks and TSLA Stock
Some hope arrives at Tesla with the launch of the company’s long-gestating Cybertruck. While the futuristic looking truck is now available for purchase, only about 10 of them are expected to be delivered by Nov. 30 of this year.
That’s not many considering that as many as two million people have reserved one. Even during the Q3 earnings call, Musk tempered expectations for the Cybertruck, saying that while some deliveries are expected this year, it will likely take 18 months or longer before the electric pick-up truck is a significant profit contributor.
Meanwhile, Tesla seems to be moving in new directions, teasing the development of a supercomputer called “Dojo” that can be used to train artificial intelligence models for self-driving cars.
Musk has pledged to spend more than $1 billion on the computer’s development. TSLA stock got a big boost after investment bank Morgan Stanley (NYSE:MS) issued a report saying that Dojo could boost Tesla’s market valuation by as much as $600 billion.
The progress, readiness, and potential success of the supercomputer in improving Tesla vehicle quality is unclear. Tesla’s self-driving mode has led to crashes, fatalities, lawsuits, and investigations.
Other Issues
While many retail investors remain loyal to Tesla and Elon Musk, TSLA stock has been a difficult security to hold in recent years.
The share price suffered a massive 63% decline between September 2022 and January 2023 after Musk bought social media site X and concerns were raised about his ability to focus on Tesla. The share price has been volatile, rising 70% in spring but falling 25% in late summer.
According to the Barron’s article, the extreme price movements in TSLA stock have weighed on the entire S&P 500 index over the last year.
As has been the case for years, Tesla remains one of the most heavily shorted stocks on Wall Street, meaning that traders are betting that the share price will decline. On top of all this, Musk remains extremely controversial, especially with his social media posts and comments, which continue to divide people and influence their views of Tesla.
TSLA Stock Is Not Buy
Tesla is struggling with a litany of problems right now. But the bottom line is that the company no longer enjoys the huge competitive advantage it had for years when it was the only electric vehicle maker in the world.
As companies such as Ford (NYSE:F) and General Motors (NYSE:GM) electrify their fleets, consumers will have many other options when it comes to electric vehicles. Including EVs that are better made and less expensive than a Tesla. For this reason, above all others, TSLA stock is not a buy.
On the date of publication, Joel Baglole did not have (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.
