Is Tesla’s Battery Running Low? 3 Signs TSLA Stock Needs a Recharge.

Stock Market

Tesla (NASDAQ:TSLA) stock continues to face headwinds. The Elon Musk electric vehicle maker has seen shares fall nearly 30% since the start of the year. High interest rates coupled with sliding consumer demand for new electric vehicles have hit into the company’s deliveries growth figures.

Despite a recent CPI report for April pointing to a decline in inflationary pressures, the Federal Reserve has not let up on keeping rates higher for longer. This will effectively keep current EV market headwinds in place. Below are 3 reasons TSLA stock is a “hold” in my book.

Global EV Demand

Electric vehicles were all the craze several years ago after governments across the world put in place incentives for consumers to purchase them. For example, in the United States, Tesla not only benefited from Department of Energy subsidies, but buyers of Tesla EVs enjoyed tax incentives as well.

Rampant inflation and the Federal Reserve’s subsequent decision to increase the Federal Funds rate to a two-decade high have severely tempered the EV market’s growth.

In the beginning of 2024, Tesla CEO Elon Musk put in bluntly, expressing to investors on an earnings call that vehicle volume growth would be “notably slower.” So far, his premonition has been correct.

Tesla reported 386,810 deliveries in the first quarter of 2024, well below analyst estimates of 457,000 and down 8.5% from the same period in 2023. Market conditions for Tesla’s EVs has yet to improve.

As long as interest rates stay at their current level, the demand outlook for the EV maker’s vehicles remain gloomy.

For China’s EV market, competition has intensified

While Tesla does not breakdown revenue by geographic location, analysts and investors understand quite well that one of the EV maker’s largest markets is China. Despite experiencing an economic slowdown, Chinese exports have held up in recent months. Burgeoning sectors like electric vehicles have guided this export growth.

As Beijing continues to promote the use of EVs, there has been a rise of locally grown EV champions. This includes BYD (OTCMKTS:BYDDY), Li Auto (NASDAQ:LI), and, most recently, Xiaomi.

While Tesla struggled in Q1’2024, the majority of its Chinese peers saw robust double-digit growth in deliveries. The intensifying competition has led to a price war among China’s EV giants, which has hurt margins and sales growth. Still, EV firms like BYD appear to be on firmer ground than Tesla these days.

TSLA Stock Can Rebound

Tesla’s shares have plummeted significantly in 2024. Currently, from a valuation perspective, TSLA trades at around 63.3x forward earnings. While this is way higher than Chinese EV companies like BYD and Li Auto, investors may see this loss of share value as a buying opportunity.

They might not be incorrect, in spite of all the apparent market headwinds.

Tesla’s shares have demonstrated the capability to rebound when shares have taken a significant beating.

In 2022, TSLA fell 65%, as many investors sought to decrease their exposure to technology and emerging sectors equities. Yet, by the end of 2023, Telsa shares more than doubled in value.

That is all to say, while Tesla shares have severely underperformed the market, chances are the EV maker could rebound, which makes TSLA as a “Hold” for me.

On the date of publication, Tyrik Torres 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.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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