Will Tesla Stock Recover?

The Magnificent Seven stocks have surged into the limelight over the past year, so much so that concerns have been raised about the high concentration on a handful of companies. However, speculation that AI’s emergence could mirror the onset of the internet has kept investors buying the biggest technology stocks. All except for Tesla (NASDAQ: TSLA), which has lagged behind its peers.

TSLA dropped 19% in 2024 alone, while the other technology giants’ stocks ramped higher. The downward trajectory doesn’t appear to be short-lived, either. More and more analysts have begun to lower their price targets on TSLA and distance themselves from bullish forecasts.

While the prospects for artificial intelligence buoyed enthusiasm for the Magnificent Seven, Tesla’s woes stem from other factors.

It’s not so much the company’s technology potential in question as its execution. Even some of Tesla’s most fervent supporters have been discouraged by the lack of clear-cut production dates for its new models. That discontent was amplified by a rash of unpopular decisions by Tesla’s leadership, causing respected analysts like Dan Ives and Oliver Kell to publicly take aim at the company.

So will Tesla stock recover?

Why Did Tesla Stock Drop?

It’s been a longstanding assumption that electric vehicles (EVs) are the future of transportation. That belief took Tesla from a small EV company to a $629 billion behemoth. But the company also delivered on its early potential, becoming the biggest EV producer in the world.

It’s not anymore. In the 4th quarter of 2023, China-based BYD delivered 526,409 EVs compared to Tesla’s 484,507. BYD, backed by world-famous investor Warren Buffett, was able to cut into Tesla’s market share because it offers a budget-priced SUV.

That aggravated Tesla investors for two reasons. First, the company has engaged in a series of price drops on its vehicles, designed to keep competitive. All it succeeded in doing was shrinking its margins, and the 30% gross margin Tesla enjoyed in 2021 now stands at 18.6%.

Secondly, Tesla has promised a budget EV of its own for years but it is yet to deliver. The production date has now been pushed back to late 2025 for a compact EV that should be priced at around $25,000. Tesla investors aren’t holding their breath, though, because the company has struggled to make good on its promises before.

Will Tesla Stock Bounce Back?

According to the consensus of 38 analysts, Tesla stock will bounce back by 10.6% to fair value of $214.33 per share.

Some underlying fundamental concerns exist, though. For example, the company’s 4th quarter of 2023 earnings didn’t inspire much confidence. Revenue came in 2.32% below expectations at $25.17 billion versus estimates of $25.6 billion, but it still was a 3% year-over-year increase. At face value, net income was substantially more than last year, $7.93 billion versus $3.69 billion in 2022.

That number was inflated by a $5.9 billion one-time tax benefit. Without that windfall, net income was down almost 40% year-over-year, another byproduct of slim margins. Tesla CEO Elon Musk also wrote a letter to TSLA holders cautioning that 2024 EV sales would be much softer than they were last year.

That’s an alarming statement for Tesla investors who expected EV sales to continue marching upward toward market dominance. While that may still happen, there have been a series of reports that indicate that EV sales are slowing across the board.

Early EV adopters have bought their vehicles and a dwindling catalyst exists for mainstream acceptance. Some traditional automakers have pumped the brakes on their EV models and asked lawmakers to pause EV legislation.

Wall Street Shifting Bearish

Analysts have begun to rethink their positions on TSLA, but none may be more concerning than Dan Ives’s reversal.

Ives has been a dyed-in-the-wool Tesla bull, but he dubbed the most recent earnings call a “train wreck”. Then he slashed his TSLA price target from $350 to $315 per share.

Overall, 23 analysts rate Tesla as a Hold, though there are still 19 Buy ratings on the stock, and the highest forecast has TSLA jumping an astounding 72.5% to $345 in the next year.

Conversely, there are 7 Sell ratings on the stock at the moment and the lowest forecast projects a share price decline to $68 per share over the next 12 months, representing a disastrous 66% fall.

Is Tesla Stock Undervalued?

The consensus on Tesla has turned bearish over the past few months, and well-respected trader Oliver Kell has joined that camp. He issued a scathing post on X that questioned the wisdom of investing in Tesla.

Kell was concerned that TSLA dropped as the market rallied and that it has consistently declined. He also cited stagnating revenue and earnings growth in 2023. Kell believes that Tesla’s price-to-earnings value of 62x is far too high and he’s concerned that there is relativity little trading activity on the stock.

He also pointed to uncertainty arising from a court decision that suspended Musk’s whopping $56 billion pay package. After admitting that he had been successful with TSLA in the past, Kell doesn’t see any catalyst that will drive the stock forward from here.

Is Tesla Stock a Buy or Sell?

Those are a strong set of assertions from an esteemed trader, and many similar concerns have been echoed by other analysts. As the bad news has piled up for Tesla, the number of detractors has grown.

But Tesla is a part of the Magnificent Seven for a reason. The company was a disruptor in the EV space and has continued to build its market share. The over 480,000 vehicles the company delivered in the 4th quarter was an all-time high for Tesla.

Negative news has continued to overshadow the positives so far this year. That could make TSLA an attractive proposition for investors who believe the company is due to turn it around. Unfortunately, it doesn’t look like that will happen anytime soon.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.