The setback to Tesla’s market value in the first week of 2019 is the largest such loss ever experienced by the company over a similar period since its IPO ten years ago. Tesla’s 12% slump since the beginning of January is its worst decline, in terms of percentages as opposed to dollars gained or lost, since it fell by four percentage points each day over the first nine trading days from early last year.
After Tesla Inc. shares more than doubled in just one year of 2023, the company had a blockbuster … However, 2024 is entering a new tone; Elon Musk’s car company has begun the year off with its worst start yet.
In just two weeks of 2024, the company has lost more than billion in market capitalization. It’s not hard to figure out why, as the Austin, Texas-based EV maker has been pounded by a barrage of negative news: a U-turn on EVs from the car rental giant Hertz Global Holdings Inc., another Chinese tariff cut, and increased wage pressures.
All of this … even though demand for EVs is slowing down, especially in America.
“The major worry of investors regards stagnating growth on Tesla’s side,” Cowen analyst Jeffrey Osborne said in an interview. The low prices in China translate exactly to those concerns, as it looks like the race is toward the bottom for the EV industry due to insane competition over there.
It is the foremost blow to Tesla’s market capitalization at the beginning of a year since it was listed in 2010. In percentage terms, the 12% decline in Tesla stock since mid-January is also the worst performance for nine trading days of January than what was booked three years ago when similar losses were recorded at around 14%.
Alas the chances of an imminent turnaround for EV manufacturers do not look promising.
In early 2023 Tesla began a price-cutting campaign to promote the demand for its cars. However, the outcome has been a constant depreciation of its once-big profit margin. However, Tesla’s automotive gross margin ex-regulatory credits for the third quarter dropped to 16.3% from 27.9 % one year ago.. And the heat is on, with pay increases for production workers in US Tesla plants.
‘ “There is a cyclical downturn in the EVs and this cycle has been aggravated by unfavorable competitive dynamics, which explains price cuts and plunging margins,” Ivana Delevska of Spear Invest said during an interview.
However, Tesla has had to redirect deliveries intended for its Berlin factory due to Western military actions and tensions in the Red Sea as well as the suspension of most production at a plant near this city from January 29 thru February.
Not Strong Enough
In its third-quarter earnings report of October 2019, Tesla was the first to mention a slowdown in demand for electric vehicles. Almost as quickly, automakers and suppliers all over the world also weighed in with their negative projections. Most car manufacturers scaled down their expansion projects.
After that, earlier this month Tesla announced its fourth-quarter delivery data. Despite exceeding analysts’ forecasts, they put the company behind China’s BYD Co. in global electric car sales.
It has been a rude shock for Tesla investors. In 2018, the stock was eighth in terms of performance among stocks listed on the S&P500. In 2019, this year so far, it is the eighth worst.
Of course, this is a huge loss for Musk personally. However, even the world’s richest individual has lost more than billion of wealth in 2019 so far. Musk managed to outsell Bernard Arnault last year as the richest man in ‘Bloomberg Wealth Index’, but Jeff Bezos has been approaching fast lately, with 9 billion versus his 206 by Friday’s close.
The majority of Musk’s fortune results from the 13 percent ownership stake in Tesla and approximately 304 million stock options applied. He also controls about 42% of SpaceX which is estimated to be valued at around billion by Bloomberg’s wealth index.
Still The One
Given that, Tesla still has an important role as a pioneer company in the worldwide transformation from cars powered by gasoline to mostly electrified. The reason is how far it is advanced even of its possible competitors. The BYD of China may have beaten Tesla in terms of units sold, but it is still outstripped by the latter concerning revenue and profits. It doesn’t sell cars in the US, where Tesla is dominating.
However, the biggest problem of Tesla actually may be its past success and the promise it created. The market capitalization of Tesla swelled as investors rushed into its stock, becoming much bigger than any other motor vehicle manufacturer in the world. But with the shares priced for perfection, that also meant they were very sensitive to large reactions from anything negative.
This is the reason why so many supporters of Tesla claim that it should not be compared to already established car productions. In their eyes, the highest real value of this company lies in its future and to actualization the first fully autonomous car. The only drawback is that Tesla has been talking about this for some time now, and most experts say the technology isn’t even remotely close.
“The fully autonomous driving and AI promises that are already reflected in the valuation of Tesla have not been delivered”, Spear’s Delevska said. “This is related to being only another car manufacturer would be far from enough for $750 billion value.”