Musk's growth warning hammers Tesla: Stock plunges 12%, value drops by $80 billion

Tesla's stock hummers over 12% after Elon Musk hinted at a slowdown in sales growth this year, causing concerns about soft demand and Chinese competition.

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Courtesy: X

Tesla shares plunged over 12% on Wednesday after CEO Elon Musk indicated slower sales growth this year, despite recent price cuts. This raised concerns among investors about weakening demand and intensifying competition, erasing $80 billion in market value.

What Elon Musk said after Tesla shares plunged over 12%

In an earnings call, Musk said Tesla's growth in 2024 will be "notably lower" as the company focuses on developing a more affordable next-generation electric vehicle by 2025. The outlook disappointed investors who expected robust growth to persist.

Musk noted that restarting production of a new model will be challenging given the advanced technologies involved. Shares of other electric vehicle makers like Rivian, Lucid, and Fisker also dropped amid demand worries.

Analysts said Tesla's price reductions, although detrimental to profit margins, were likely in response to rising competition from brands like China's BYD. More discounts may be required to increase sales, exerting further margin pressure.

At least nine brokerages downgraded Tesla stock following the earnings call. The company now has an average "hold" rating with a median price target of 23% above its current price.

Tesla short sellers have gained $3.45 billion so far in 2023, making it the most profitable U.S. short position this year. Still, Tesla trades around 60 times forward earnings, giving it a richer valuation than tech stalwarts like Apple and Microsoft.

Here’s what experts say:

As Bernstein analyst Toni Sacconaghi commented, Tesla looks increasingly like a traditional automaker as sales taper and competition mounts. Some experts noted its valuation could become harder to justify if growth and margins keep deteriorating.

In Q4 2022, Tesla's revenue and earnings missed estimates due to logistics challenges and waning demand, especially in China. Price reductions aim to stimulate sales but are reducing margins.

The electric vehicle industry faces headwinds with demand cooling after initial pandemic highs. Tesla's price cuts will likely intensify pressure on startups and competitors like Ford.

Tesla's growth is decelerating faster than anticipated due to competition and listless demand. Its rich valuation now seems questionable to analysts. While Musk focuses on future innovations, Tesla must shore up near-term sales and margins to appease investors.