Life is getting more complicated for Tesla (NASDAQ:TSLA) and Elon Musk as the TSLA stock forecast gets hazier by the day.
Once the darling of the Magnificent Seven, if the stock price keeps up its poor performance throughout 2024 ( it’s down more than 20% year-to-date) it could be kicked out of the prestigious club.
Quartz’s Feb. 5 headline said it all. Tesla is the worst-performing stock in the S&P 500 this year. The subhead wasn’t much better. Worse than Etsy. Worse than Boeing. Simply the worst.
And to make matters worse, the drumbeat revolving around CEO Elon Musk’s drug use continues to grow louder. While the board’s proven to be subservient when disciplining the billionaire, it can’t allow his erratic behavior to continue.
Three months ago, TSLA stock was considered a Moderate Buy (3.44 out of 5), according to Barchart.com. Today, 29 analysts cover Tesla, rating it Hold (3.28 out of 5), with a target price of $218.62, 15% higher than where it’s currently trading.
If the TSLA stock forecast is correct, Tesla can’t possibly be 2024’s worst-performing S&P 500 stock, can it?
Oh, it can, reminding investors that being an a**hole to virtually everyone on the planet has genuine bad karma attached to it.
Here are three areas to watch that could affect the outcome.
A TSLA Stock Forecast and Musk’s Wild Compensation
The billionaire’s $56 billion compensation package granted in 2018 came crashing down on Jan. 30 when Delaware judge Kathaleen St. Jude McCormick argued the board did little to justify its decision to give Musk a virtual blank check.
“Put simply, neither the Compensation Committee nor the Board acted in the best interests of the Company when negotiating Musk’s compensation plan. In fact, there is barely any evidence of negotiations at all,” CNBC reported McCormick’s comments on her decision. “Rather than negotiate against Musk with the mindset of a third party, the Compensation Committee worked alongside him, almost as an advisory body.”
Ironically, the judge’s decision comes days after Musk threatened that he would take his AI ball and play somewhere else if the board didn’t give him more shares to bring his ownership up to 25%, a level he felt would ensure his various projects could remain within Tesla.
I argued on Jan. 23 that Musk had already been more than fairly compensated for his efforts. He simply isn’t worth another ridiculous pay package.
In the weeks ahead, investors should pay close attention to what the board does to replace the rescinded pay package. It could be the straw that breaks the camel’s back, launching an activist showdown with the board and Musk.
Ultimately, this, more than anything, could alter the trajectory of TSLA stock.
Quality Control Continues to Dog Tesla
Reuters reported at the end of December about Tesla’s quality control issues. ‘
Specifically, there were 260 complaints by Tesla owners to the U.S. National Highway Traffic Safety Administration (NHTSA) in 2023. General Motors (NYSE:GM) and Toyota (NYSE:TM) had 750 and 230, respectively.
Toyota has a 15% market share in the U.S. A big reason for that is its tremendous quality control. The low number of complaints doesn’t lie. As for GM, it had almost 3x as many complaints as Tesla. Of course, it has 21x Tesla’s market share.
It’s common knowledge that Tesla’s quality has been questionable for years. In the J.D. Power 2020 Initial Quality Study (IQS), the automotive publication ranked it last with 250 problems per 100 cars.
I’ve always thought Jaguar and Land Rover had crappy quality, but Tesla takes the cake. Its problems per 100 cars was 1.5x the industry average of 166.
The Cybertruck is the most recent Tesla creation to get raked over the coals for its quality, or lack thereof. It reminds me of the Ron Howard film Gung Ho, about a Pennsylvania auto plant that gets taken over by a Japanese company. The big boss comes from Japan to tour the plant. Cars rolled off the line with no engines, etc.
Unfortunately, for Tesla owners, their issues aren’t in a movie. They’re happening in real life.
Analysts Are Losing Patience With Musk
Despite Tesla’s rating by analysts falling to Hold, many have remained bullish about the company and its stock. There are seven Strong Buys and two Moderate Buys compared to four Strong Sells.
You would think analysts would be more negative given X, his ridiculous compensation, quality control issues, falling market share and profits, his alleged drug use, and, let’s not forget, his racist thoughts and comments.
Now, I’m not a teetotaller and believe all drugs should be legalized, but that’s not what you want from a CEO, especially one that’s prone to lash out.
“In January it was reported that Musk is an occasional user of cocaine, ecstasy, LSD, and mushrooms, in addition to medical and recreational use of ketamine, and we’ve all seen him smoke weed. All of these drugs, bar the ket for which Musk has a prescription, are federally illegal, and could jeopardize his companies,” Quartz’s Feb. 5 article on his alleged drug use stated.
It goes on to say that it could be especially problematic for SpaceX, which survives off federal government contracts and looks unfavorably on drug use, etc.
On Feb. 5, Daiwa analyst Jairam Nathan downgraded Tesla stock to Hold from Buy. He lowered its target price by $50 to $195, about $5 higher than its current share price.
“We see corporate governance concerns aggravating already tough financial conditions in 2024,” Barron’s reported Nathan’s comments in his report to clients.
Analysts are generally bullish until they’re not. You can see they’re losing patience. If more of those sitting on the fence with a Hold rating move to a Sell, Tesla stock could see double digits, a level it hasn’t seen since July 2020.
On the date of publication, Will Ashworth 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.