Once again, the latest wave of speculative frenzy for Tesla (NASDAQ:TSLA) has cooled. Chalk it up to a spate of negative developments in recent weeks. These have led to fair weather fans of Tesla stock to drop it like a hot potato.
Worse yet, with the pullback paling in comparison to the frantic run-up in price for the EV maker’s shares before earnings, don’t assume that the dust has fully settled. While you’re perfectly free to “buy the dip,” in hopes of a relief rally in the near-future, there’s little to suggest that one will arrive.
Mostly, because one of the above-mentioned negative developments had to do an event that was in theory going to be a key for a possible late summer rally for shares. Instead, with this event now postponed, shares may be at risk of falling further.
As investor enthusiasm for AI stocks wanes, concerns about this company’s core electric vehicle manufacturing business are likely to continue coming back into focus.
With this, as we’ll explain below, instead of doubling-down, cutting losses should be the top thing on your mind about this stock.
TSLA Tumble: It’s Not Just Earnings That Have Caused Tesla Stock to Tank
On July 23, Tesla released its fiscal results for the quarter ending June 30, 2024. While the company beat on revenue by $1 billion, this may have been just one of a handful of positive aspects to the overall release.
When it comes to profitability during the preceding quarter, the latest numbers fell short of forecasts. Before earnings, analysts were expecting Tesla to report earnings per share of 61 cents. Actual EPS came in 52 cents, down by nearly 43% year-over-year. In addition, operating margins fell short as well, coming in at 6.3% versus a forecast 8%.
Coupled with a lack of news regarding Tesla’s non-EV endeavors, it’s not a shock that Tesla stock fell by more than 12% on the full trading day following the release. If that’s not bad enough, on earnings day CEO Elon Musk confirmed some other downbeat news. Tesla’s much-anticipated “Robotaxi Day” has been delayed by two months.
No longer scheduled for Aug. 8, it will instead happen on Oct. 10, due to some last minute design changes. Irrespective of whether this is the true reason for the delay, one thing is for certain: Tesla’s post-earnings tanking is likely to continue.
Don’t Bet on AI or the Cybertruck to Save the Day
Although the “Robotaxi” catalyst for Tesla stock is now on the back burner, you may think that EV or AI-related catalysts could help save the day. However, in our view, we wouldn’t exactly jump to this conclusion. Regarding Tesla’s core automotive business, demand weakness continues, and not just in China and Europe.
Even stateside, Tesla is experiencing challenges. For example, Tesla’s U.S. market share just recently fell below 50%. Incumbent automakers have become formidable EV contenders, pointing to more challenges ahead to Tesla’s front-runner status.
As we’ve pointed out recently, it’s doubtful that the Cybertruck, Tesla’s latest vehicle offering, will help the vulnerable EV market leader gain back lost ground.
As for possible AI catalysts, while it’s true that Musk is pushing for Tesla to invest $5 billion into his privately held xAI venture, even if the board agrees with this plan, it may not necessarily help TSLA get out of sell-off mode.
The market’s growing concerns about future AI growth has shares in companies with high exposure to this trend pull back. Perhaps, at 90 times forward earnings, this stock already prices-in a big bet on AI as if it has already happened.
The Verdict: Sell Now, or Brace for Further Price Declines
Speaking of valuation, Tesla’s pricey multiple is a big reason why we remain bearish on shares in the near-term. TSLA only climbed to such a sky-high valuation in the first place, on the view that Robotaxi and/or AI breakthroughs would counter the ongoing EV slump.
However, considering recent developments, don’t count on either of these catalysts playing out soon. Instead, the market is likely to continue questioning TSLA’s tremendous valuation premium to other auto manufacturing stocks.
That’s not to say that TSLA is at risk of falling to a valuation similar to that of an old school automaker. However, it’s not out of the question that Tesla coughs back all of its recent gains, and falls back to prices under $150 per share.
Hence, as we see it, Tesla stock investors have two choices: sell now, or brace for further price declines.
Tesla stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
