Tesla (NASDAQ:TSLA)stock had a good year. Despite the antics of CEO Elon Musk, and the supposed “collapse” of the EV market, investors doubled their money.
Tesla has nearly doubled sales over the last two years, and it remains profitable. The company has scaled production on three continents and continues to expand. At its current growth rate, Tesla will be bigger than General Motors or Ford Motor in 2025. So why are you getting the feeling this will be a bearish take on TSLA stock?
Worries About TSLA Stock
Tesla earned $2.3 billion, 66 cents per share, on revenue of $23.3 billion in the third quarter of 2023. The company claimed a profit margin of nearly 18%.
Analysts called it a miss. It was the smallest profit in two years. Sales fell short of the mark. Margins were down due to price cuts. Since the earnings came out, the stock price is down 5%.
The headlines since then have not gotten better.
Early predictions Musk could be the second Henry Ford, and not in a good way, have borne fruit. This may be the least of Tesla’s worries.
A strike in Sweden has now spread to the rest of Scandinavia. The company’s insurance customers have filed a class action against their rates in Texas.
The vaunted Cybertruck drew ho-hum reviews.
A factory in Mexico due to make a $25,000 car has been delayed.
A Tesla whistleblower claims its Autopilot feature is unsafe for use on public roads. Hertz Global Holdings has backed off its support of Tesla. Europe’s Sixt has joined it.
Most worrying is that tax credits on some Tesla models will be cut in half next year. Tax credits have been a big help in scaling Tesla’s sales.
Year of Transition
Next year shapes up as a year of transition for the whole EV industry.
The high-end market is saturated, and most EV makers weren’t ready for it. Even Tesla isn’t yet ready, as it plans that $25,000 car. The delay in building Giga Mexico could push production back to 2026.
Meanwhile China’s BYD, which already makes cars near that price point, is preparing an export push. BYD sold 300,000 cars in October. Tesla’s China production in October was a little over 72,000.
Then there’s China’s CATL, which supplies Tesla and which the U.S. government considers a security threat. CATL now claims it can deliver 600 miles on a charge with its latest design.
New solid-state batteries, often made with different materials and capable of 600-750 miles per charge, are coming. But they won’t be on the road for a few years. I expect many mid-market buyers to wait for those batteries and to buy hybrids instead.
The Bottom Line
Tesla is unquestionably America’s EV champion. But that is priced in the stock.
Tesla is one of the very few EV companies that makes a profit. But I expect industry profitability to decline in 2024, amid buyer skepticism and the materials transition.
By 2027, I expect better, safer batteries to deliver cars with the range of today’s Internal Combustion Engines (ICE), and at mid-market price points. I own a hybrid. I expect my next car to be electric.
Tesla will still be around in 2027. Most of today’s EV makers will not. But this, too, is already priced in Tesla stock, which is worth 8 times this year’s sales. I expect next year will be a rough one for Tesla and the entire EV industry. You’ll be able to get Tesla stock for less next Christmas.
As of this writing, 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.
