Tesla (NASDAQ:TSLA) stock is not having the best 2024. With macroeconomic developments like the global carry trade and a slowdown in electric vehicle (EV) demand adding to the pressure, shares are down 20%. Furthermore, because of the dramatic pricing reduction, Tesla’s vehiclesᅳincluding the Model Yᅳhave lowered profit margins. Experts believe that despite the year-to-date decline, growing competition in key markets such as the U.S. and China will cause Tesla stock to suffer going forward.

Manufacturing problems, including supply chain delays and facility closures, have further complicated Tesla’s ability to routinely meet demand. Recent data indicating decreased year-over-year vehicle production and delivery numbers hints at slower growth for Tesla.

Thanks to Tesla’s performance on many fronts and a better economic environment, investors could overcome the premium valuation of the firm in the past. But given macroeconomic uncertainties and Tesla’s own operational flaws, that is not the case anymore. It’s thus advisable to divide some of your Tesla stock ownership and reinvest in cheap stocks.

Overvaluation and Financial Performance Concerns

Many professionals believe Tesla’s stock is overvalued. Aiming for $85 per share, Craig Irwin of Roth MKM has labeled Tesla as “egregiously overpriced.” This point of view comes from the conviction that, among other firms, Tesla’s current value far exceeds its financial performance and market share.

The target prices of many analysts for Tesla are really fascinating. When considering whether Tesla should be seen as a tech company or an automotive one, the lowest expected price is $115, while the highest is $310. Since many experts want to see how Tesla’s efforts in artificial intelligence and autonomous driving would affect its long-term value, the general view on Tesla stock is to hold.

Driven by the company’s autonomous driving and artificial intelligence capabilities, Cathie Wood of ARK Invest stays a strong promoter of Tesla, claiming the stock may surge to $1,400 by 2027. Her optimistic estimate is based on large expected revenue from Tesla’s robotaxi operations.

Some experts, however, argue that Tesla’s reliance on future artificial intelligence developments and the hoopla surrounding autonomous driving cannot maintain its present valuation. While Tesla shows potential in artificial intelligence, they contend that right now, among the most consistent and profitable AI investments available are Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT).

Aggressive pricing cuts have been causing profit margins on Tesla’s cars—including the Model Y—to drop. Recent financial results show that Tesla’s gross margin declined from 23.8% to 17.6%, and its operating margin dropped from 16% to 8.2%.

Further influencing market confidence was lower than expected second quarter (Q2) 2024 outcomes from Tesla. Down 46% year over year, earnings per share was 42 cents, falling short of Street estimates by 16%.

Increasing Competition and Market Saturation

Chinese automakers like BYD (OTCMKTS:BYDDF) are out-delivering Tesla, making the EV business more competitive. This competition affects Tesla’s market share and growth.

Tesla’s Q2 2024 Chinese EV sales were mixed. Tesla exported and sold 205,747 vehicles from its Shanghai facility. Shanghai contributed 46.34% of Tesla’s global sales, the first time since Q2 2022 that it fell below 50%. BYD sold 426,039 electric vehicles in the second quarter of 2024, up 42% from last year.

Chinese consumer buying power and market circumstances have changed owing to economic distress. As Chinese companies like BYD gain market share, Tesla confronts competition. Tesla starts the quarter with exports and finishes with domestic sales.

China, the biggest EV market, is falling in 2024. Though China dominates EV manufacture and sales and provides government subsidies, trade tensions with the US and Europe have hampered growth.

Additionally, poor charging infrastructure and high ownership costs have hampered customer excitement, but US EV sales reached 1.4 million in 2023. Toyota, Ford, and GM are heavily investing in EVs, bolstering Tesla’s domestic competition.

Toyota‘s (NYSE:TM) 9.9 price-to-earnings ratio reflects its consistent value and strong revenues. Ford (NYSE:F) is at 10.5 P/E, GM (NYSE:GM) 4.5. But Tesla stock trades at a whopping 55 times, ranked lower than 89% of its peers.

Though Tesla trades at a premium value, it sold 1.81 million automobiles last year, whereas Toyota sold 11.2 million vehicles in 2023; these numbers scarcely support TSLA’s valuation estimates. GM’s sales were 6.2 million vehicles.

Tesla Stock Is Still Expensive and Risky

Slower sales growth for Tesla results from broader economic factors like inflation and increasing interest rates, reducing consumer buying power. Higher financing prices might discourage prospective consumers from making big purchases like electric cars.

Recent stats reveal that year-over-year, Tesla’s car manufacturing and delivery counts have dropped, a precarious position because Tesla is not as diversified as some of the other companies it’s up against. Compounding issues are the focus on increasing sales through cutting down prices, which is squeezing margins.

As a result, Tesla stock needs to cool down before investors can decide to dip their toes once again.

On the date of publication, Faizan Farooque 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.

On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.