Stock Market

Laying Out the Bear Case for Tesla Stock

Given Tesla’s (NASDAQ:TSLA) tendency to trade on not just fundamentals, but hype as well, going bearish on TSLA stock is a risky move.

You may think that the electric vehicle maker’s shares are on the cusp of capitulation, only for the investing public to send shares significantly higher on moderately promising news. That’s exactly what transpired from early January to mid-February.

During that time frame, shares doubled in price. As I have discussed previously, this was in large part due to the market’s reaction to statements from CEO Elon Musk regarding the initial success of the company’s vehicle price reduction gambit. Excitement for Tesla’s 2023 Investor Day also was a major factor in its strong performance.

But now, this event has come and gone. Concerns about near-term results are again climbing. Shares are pulling back, and could continue to do so. Here’s why.

TSLA Tesla’s $190.90

Investor Day has Brought TSLA Stock Mania to a Halt

On March 1, Tesla held its much-awaited Investor Day, at which Musk revealed the company’s latest “Master Plan.” Ahead of the event, investors were hoping that this “Plan” entailed the development and release of a lower-priced Tesla vehicle model.

Unfortunately, while the event may have been well-received by fans and admirers of the company, Investor Day did little to impress TSLA stock investors. As one Forbes commentator put it, the event was “long on time, short on useful new details.”

That is, although Musk and his team unveiled Tesla’s plans to expand production capacity, by building a new Gigafactory in Monterrey, Mexico, the company failed to reveal plans for a mass-market Tesla model. The company was also vague about its plans to reduce vehicle production costs.

Instead, the focus of the presentation was on Tesla’s longer-term goal of driving and capitalizing the global transition to renewable solar and wind energy.

While a lofty goal, in line with the argument that “Tesla is a tech company that happens to make cars,” investors by-and-large believe Tesla is a car company. That means they care more about its ability to continue selling an increasing number of vehicles in the years ahead.

Why This Latest Pullback Could Continue

Disappointed with Investor Day, investors bid down TSLA stock right after the event. Falling slightly immediately after the event, as of this writing, TSLA is continuing to move lower, falling below $200 per share for the first time since early February.

Sure, if you bought into Tesla before the super rally, this may not seem like a big worry. After all, the stock is still up over 75% year-to-date. However, while so far only experiencing a modest price decline, shares may be in for a continued steady slide over the next few months.

It’s possible that Tesla’s vehicle price reduction efforts have had less of a major impact on demand as Musk suggested in his January statements. There’s already evidence that the boost from lower vehicle prices is waning in China. The same phenomenon may be happening stateside.

In addition, it’s also unclear whether Tesla can re-accelerate sales growth via price cuts, while at the same time minimizing further impact on its profitability.

Sell-side analysts have already walked back their earnings forecasts for this quarter and the next. Tesla’s results for Q1 and Q2 could be mixed at best and underwhelming at worst, putting additional pressure on shares.

The Verdict

As I have argued before, incumbent automakers could still successfully catch up to this EV leader, affecting Tesla’s ability to scale up production more than ten-fold by 2030.

Despite the global push to “go electric,” EV market growth between now and the start of the next decade may not be large enough to support such a big jump in volume.

Tesla’s premium valuation is at high risk of further contraction if it becomes undeniable that its days of growing at a 40% or 50% clip are behind it.

There are plenty of valid concerns about its near-term and long-term performance. With this, selling, or at least holding off, of TSLA stock may be the best move.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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