Tesla (NASDAQ:TSLA) has undoubtedly been among the best-performing stocks of our generation. The fact that early investors booked gains of 200x on this mega-cap stock (which hit a valuation well over $1 trillion at its peak) is remarkable. In many respects, TSLA stock paved the way for an entire sector, allowing us to see a brighter (and greener) future ahead. That’s something that can’t be taken away from the company.
While Tesla’s mission statement is on point with the EV revolution many believe needs to happen, and Elon Musk is indisputably among the most proficient businessmen at exposing secular growth trends before they materialize, it’s also true that macroeconomic pressures are picking up. The Federal Reserve’s incredible rate hiking campaign (the fastest in terms of speed ever) has made buying any vehicle prohibitively expensive. As a purveyor of premium vehicles, Tesla has responded by slashing prices.
That’s been a boon for some car buyers who can pay cash and certainly will help stoke demand in the near term. However, it’s also true that Tesla’s fundamentals have taken a hit, with gross margins striking and concerns about future ramp-up capital spending for new models driving some value investors to other EV names.
Some of this negative sentiment is warranted, but the question is – can Tesla continue to show strength in light of these big challenges?
What to Watch with Tesla
Elon Musk recently visited Tesla’s Giga Berlin production plant, providing updates on its appearance and announcing plans for a €25,000 (USD 26,703) EV. Musk frequently inspects production progress and meets with the manufacturing team. However, with so much riding on the company’s growth, investors appear to be paying closer attention to where cars are produced and for how much.
This €25k vehicle targets cost-conscious customers, expanding Tesla’s market reach. Tesla’s €25k EV was previously rumored for production in various markets, including China and Mexico. During a recent meeting with employees, Musk confirmed its production in Berlin for the European market. Despite price reductions, the Model 3 hasn’t hit the €25,000 mark yet, but Tesla has long aimed to create a more affordable vehicle.
Analysts from Loup Ventures suggest a potential 2024 debut, but Tesla’s focus on scaling the Cybertruck in Gigafactory Texas might affect new projects due to Musk’s concerns about interest rates. The vehicle may draw design inspiration from the Cybertruck.
Musk’s Net Worth Has Declined
The reality for Tesla investors is that Elon Musk, the company’s CEO, still owns a significant chunk of TSLA stock. While that’s great for those worried about whether he’s incentivized to focus on Tesla (relative to SpaceX, X, or some of his other endeavors), it’s also true that his balance sheet has caused pain for investors in the past.
Via selling nearly 8 million Tesla shares to fund his then-Twitter acquisition partially, shareholders of many stripes felt left down. Thus, perhaps a disproportionate amount of time goes into calculating his worth, implying that he won’t sell shares if times are excellent.
Musk has already stated he hasn’t planned future stock sales (something he’s said before numerous such sales). So, it’s hard to take the man at his word. And with Elon Musk’s net worth dropping to about $195.6 billion in November 2022, many may have been concerned about the potential for some equity offloading, given how capital-intensive some of his other businesses are.
We’ll see how this all plays out. Indeed, this will be a key potential catalyst investors will want to be wary of, given Musk’s massive stake in the company.
Maybe Steer Clear of TSLA For Now
Tesla’s valuation has been a subject of concern among analysts. Elon Musk’s influence and track record have supported the stock’s price, but recent developments make holding TSLA stock riskier. The latest earnings report disappointed; the weak economy affects EV demand, rising interest rates impact auto loans, and Cybertruck faces manufacturing challenges.
Furthermore, growing competition in the EV market diminishes Tesla’s dominance. While Tesla’s past success is remarkable, TSLA stock became too risky to hold at over 60 times forward earnings.
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.