Tesla Faces Stock Slide Amidst Growing Competition in Electric Vehicle Market

Tesla, a prominent player in the electric vehicle (EV) sector, has recently witnessed a significant decline in its stock price, marking its lowest point since May. On October 30, Tesla’s stock dipped by nearly 5%, falling below the $200 per share threshold. This drop follows the release of Tesla’s third-quarter earnings results on October 18, which fell short of expectations.

While the EV market represents a lucrative opportunity for companies like Tesla, the industry is experiencing a surge in competition. In the third quarter, EV sales soared by nearly 50%, outpacing the growth rate of overall vehicle sales. As a result, electric vehicles now constitute approximately 8% of all vehicles sold in the United States, up from about 6% a year ago.

The rising popularity of electric vehicles has not gone unnoticed by the broader automotive landscape. Numerous manufacturers are launching new EV models, expanding the choices available to consumers. While this diversification benefits buyers, it also intensifies the competition that Tesla faces.

The impact of this heightened competition is already evident. During the third quarter, Tesla saw a decrease in sales of its premium Model S and Model X vehicles compared to the previous year, while Mercedes-Benz reported a significant increase in EV sales. Consequently, Tesla’s market share in the EV sector declined to 50% in the third quarter, down from over 60% in the previous year.

This competitive landscape is not expected to ease, especially considering the recent agreements between the United Auto Workers and major automakers such as General Motors, Ford Motor Company, and Stellantis. These agreements, which resolved auto strikes, are likely to intensify the competition Tesla faces in the EV market.

The escalating threat of enhanced competition has contributed to the recent drop in Tesla’s stock. Additionally, Tesla’s battery supplier, Panasonic, reported its first quarterly loss in three quarters. The company attributed this loss to declining demand for batteries used in Tesla’s Model S and Model X.

These challenges are just a few of the issues affecting Tesla in recent times. Other concerns include the potential negative impact of the eagerly anticipated Cybertruck on profits, an investigation by the Department of Justice into Tesla’s EV mileage claims that may lead to penalties, and the potential effects of higher interest rates on demand, potentially necessitating price cuts that could erode profitability.

In light of these impending headwinds, some analysts on Wall Street have been revising their outlook for Tesla. The consensus estimate for full-year earnings per share in 2024 has decreased from $4.17 to $3.75 over the past 90 days.

Bernstein, a reputable sell-side research firm, released a report on October 30, expressing concerns about Tesla’s margins and vehicle sales in the coming year. The report highlights that to achieve a growth target of 500,000 units this year, Tesla had to reduce prices by approximately 16%, placing considerable pressure on overall operating margins.

Toni Sacconaghi, Jr., an analyst at Bernstein, noted, “It remains unclear if Tesla can further cut prices enough to drive sufficient demand elasticity without potentially becoming negative.” If Tesla fails to stimulate sales through price reductions, it may face the dual challenge of declining revenue and profits, leading investors to reconsider the premium valuations they are willing to assign to Tesla shares.