Tesla Stock Warning: Why Now Is Not the Time to Go All-In on TSLA

Stocks to sell

Once the king of the EV sector, Tesla’s (NASDAQ:TSLA) outlook has clearly shifted. The company has long defied critics, but it’s clear that the company is at a key crossroads. Now down nearly 30% year-to-date (a marked improvement off its lows), some bulls may be looking for signs that now’s the time to add to their positions in TSLA stock.

The market is correctly accounting for numerous challenges at the moment.

Consumer demand is waning, competition is heating up dramatically in this sector, and this comes as government subsidies are expected to fade.

Despite cost-cutting efforts, Tesla continues to confront significant market pressures. Stagflation could compound risks, with TSLA stock looking overvalued to me at 44-times forward earnings. (The typical multiples for car companies are much, much lower).

The question is whether Tesla really is an AI, software, or tech stock, as its brass and bulls in the investing world seem to suggest. I’m not so sure that’s the case, and see significant downside from current levels. Here’s why.

TSLA Stock Is Expensive

After a steep decline, investors and analysts often advocate buying stocks for their reduced prices. Despite a post-earnings recovery and hopes for Full Self-Driving, Tesla’s stock plummeted 28.8% by May 17, making it one of the S&P 500’s worst performers.

Trading more than 50% below its late 2021 peak, Tesla’s decline didn’t align with earnings estimates, partly due to weaker-than-expected deliveries.

Elon Musk’s optimistic remarks on Tesla’s future during the April 23 earnings call and news of potential FSD approval in China provided brief encouragement. However, despite these developments, Wall Street continuously revised earnings estimates. 

The market expects a 2024 EPS of $2.44, which shows a decrease from the past estimates of $3.79 and $7.07 in 2023 and 2022, respectively. This shows a higher forward price-earnings ratio of 72.8 as of May 5.

Analysts have been continuously lowering Tesla’s earnings estimate for next year, anticipating $3.32 compared to $5.27 this year.

The 2025 P-E ratio rose to 53.5, up from 45 in March, surpassing previous 18-month highs. Other companies like General Motors and Toyota also have lower forward price-earnings ratios.

An Analyst Says TSLA Will Plummet 70%

According to ‘Big Short’ analyst Danny Moses, he predicts that Tesla will soon see a sharp decline in stock price. He expects a 70% drop for TSLA, which will be around down to $50 from its current $171 price. 

Moses also shares concerns about the stock’s core business and skepticism, as the company seems to be diverting its attention to other matters, like AI and robotaxis. He notes that investors have been growing impatient with Tesla and its future in the automotive industry. 

Moses links the expected downturn to Tesla’s focus on robotaxi and AI ventures, arguing they conceal underlying operational challenges. He critiques CEO Elon Musk’s emphasis on these endeavors amid core business struggles.

Despite a temporary stock uptick post-Musk’s Q1 earnings call, Moses maintains skepticism, seeing these announcements as distractions from Tesla’s core issues.

Under scrutiny from the Department of Justice for allegedly misrepresenting its self-driving technology, Tesla remained the focus of Moses’s short position. He commended Wayve, an autonomous driving company that secured substantial funding from investors, including Nvidia and Bill Gates.

TSLA is a No-Go

Tesla faced scrutiny due to limited adoption of its Full Self-Driving tech, with only 2% of trial users opting for the subscription, raising concerns.

Amid workforce changes, laid-off Supercharger team members were reportedly rehired. However, Tesla progressed with a new megafactory in China, and cybertrucks gained traction in the used car market.

However, other factors still influence investor interest. The Biden administration investigates Tesla for Autopilot system defects, potential securities fraud, and internal controversies akin to Nikola’s CEO’s conviction. Musk’s potential legal jeopardy looms large.

Considering all these factors, it might be best to avoid TSLA stock right now.

On the date of publication, Chris MacDonald 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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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