Tesla (NASDAQ:TSLA) has certainly underperformed its sector. With TSLA stock down over 30% this year, the company that’s invested heavily in China with its Shanghai gigafactory could be poised for more downside. Indeed, Model Y production there faces cuts due to economic uncertainties.
Tight competition for more affordable alternatives are rising. In 2024, Tesla aims to sell up to 700,000 units in China, but this holds risks as the company is facing other hurdles influenced by its CEO, Elon Musk.
Market analysts foresee Tesla’s potential removal from the Magnificent Seven because of market challenges. Consumer interest in electric vehicles has remained steady, while layoffs persist amid sluggish demand, affecting Tesla.
The company started a “damage-control campaign” to address concerns from European leasing firms regarding pricing and service delays, compounding challenges amid weak U.S. EV demand.
Shareholder Vote on June 13
Tesla stock slipped around 1% ahead of the crucial shareholder vote scheduled for June 13. Shareholders are set to decide on CEO Elon Musk’s contentious $46 billion compensation package from 2018. Despite prior approval, a Delaware court rejected the package in January because of procedural concerns.
Shareholders believe that Tesla’s own Board of Directors are not reliable, this raising criticisms about Elon Musk’s compensation plan. They think if the plan get approved, Musk is not being held accountable on the company’s losses that were mostly due to his influence.
The shareholders also argues with the board which is mostly composed of Musk’s close associates. They believe the board also doesn’t prioritize Tesla’s long-term success and that the compensation package should be entirely rejected.
Awaiting the shareholder vote, Tesla investors are also closely monitoring recalls. As of this writing, its recent 125,000 recalled vehicles were mostly due to seatbelt warning dysfunctions.
BYD is Racing Past Tesla
In China, electric vehicle sales rebounded, offering optimism for automotive investors. However, hybrids bring more potential than Tesla’s models. BYD (OTCMKTS:BYDDF), Tesla’s current biggest rival, saw a surge of sales in May.
The company delivered over 330,000 passenger vehicles, which were both battery vehicles and plug-in hybrid vehicles.
According to data reports, BYD’s total vehicle deliveries increase 6% in April, and 38% in 2023. Year-to-date the sales for 2024 reached over $1.2 million units. Export sales increased 177%, compromising 14% of BYD’s total passenger vehicle sales so far this year.
Tesla’s regional and monthly sales figures aren’t disclosed. Investors anticipate the next update in early July, coinciding with second-quarter delivery data.
Industry data is scrutinized for insights, with Tesla’s Chinese production down approximately 18% year-on-year in April and European sales dipping around 2%. May figures are awaited in the coming weeks.
TSLA Stock Looks Risky
Due to Tesla’s struggles, its stock remains overvalued in my view. The company’s growth prospects are hindered by stagnant forecasts and increasing competition.
In my view, the company’s fundamentals are deteriorating, particularly on a price-earnings-to-growth basis, leading to a stock price that could be poised for further declines from here.
Over the past three consecutive years, Tesla’s performance has been lagging in the market. With Musk’s recent controversies, Tesla could be affected more in the future.
Musk owns 13% of Tesla but could increase it to 22% with a proposed compensation package. I’m not so sure that’s a good thing for investors.
In my view, TSLA stock is a sell right now. Until something drastically changes, this is a stock that’s looking to risky to hold in this current environment.
On the date of publication, Chris MacDonald did not hold (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.