Of the seven biggest companies by stock valuation in the S&P 500 stock index — Amazon, Microsoft, Apple, Alphabet, Meta, Nvidia, and Tesla — only Tesla’s estimated profit for 2024 has declined significantly from where it was a year ago. Tesla shares have been the worst performer in that group by a significant margin since the third quarter earnings season kicked off in mid-October. Tesla stock sank fast after the company’s CEO Elon Musk dialed back growth expectations amid slowing demand and dour forecasts from other automakers, said Bloomberg in a report on November 3, 2023.
For the most recognizable EV brand and the largest pure-play EV maker in the world, the slowdown means further scrutiny on Tesla’s premium market valuation of about $690 billion — a level that leaves little room for error, according to the report. Its share of bullish analyst ratings is at the lowest point since April 2021, reflecting growing skepticism among Wall Street analysts. “The outlook for EV demand is a big problem for Tesla,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Their continued price cuts are taking their toll, so lower demand is only going to exacerbate this issue.”
Shares of the company traded at 56 times their forward earnings as of Thursday’s close, compared with the mid-single digit multiples of legacy auto companies General Motors and Ford, according to data compiled by Bloomberg. More importantly, Tesla’s price-to-earnings ratio is significantly higher than that of its other mega-cap counterparts.
Analysts on average now expect Tesla’s 2024 earnings to be about 40% lower than what they were estimating 12 months ago, according to data compiled by Bloomberg. For the other six mega companies, the estimates have either risen over the same period or fallen very slightly.
Cowen & Co. analyst Jeffrey Osborne said in an interview that bullish investors on Tesla are “still looking out to mid-decade and not the current demand environment,” to focus on the next car, self-driving technology, and the humanoid robot Optimus, among others things. He added that valuing such longer term possibilities are challenging, given current economic uncertainty. “I have a hard time being bullish on things beyond cars, especially technologies that don’t work yet and may never work, particularly the full self driving software,” Osborne added.
The cornerstone of Tesla’s valuation remains the EV business, where risks have been climbing fast. Rising interest rates have driven up the cost of car ownership and are squeezing consumers at a time of high inflation. Because they are such new technology, electric cars are suffering the most. Musk and Tesla have been aggressively cutting prices to boost demand, but no significant increase in sales has resulted from those lower prices, Bloomberg says.
Slower Growth Expected For Tesla
Tesla’s lower than expected 2024 growth trajectory could be due in part to a broader slowdown in EV adoption, Deutsche Bank analysts Tim Rokossa and Emmanuel Rosner wrote in a recent note. The next wave of EV consumers may require a much cheaper starting price and could be waiting for infrastructure improvements — particularly more and better charging stations.
“Although US consumers will start benefiting from $7,500 in EV incentive credit at point of sale as of January 1, 2024, we fear that this alone might not be sufficient to accelerate the demand curve in the US in the near term, especially given a record high interest rate environment,” the analysts wrote in a client note on Tuesday.
Despite that, believers in Tesla are keeping their faith in the long-term potential of electric cars since most experts and analysts see electric cars as the future of the auto industry. While competition to dominate that market will be intense, those investors are betting on Musk’s ability to keep the company ahead of the rest.
“EVs have some big problems, but Tesla is way beyond just an EV company because of Elon Musk,” said Matthew Tuttle, chief investment officer and CEO at Tuttle Capital Management. “Elon allows for a higher multiple than you would have if Tesla was just an EV company.”
If that is so, then some of his most recent decisions — such as drooping $44 billion on the company formerly known as Twitter so that he could provide a forum for lunatics, hate groups, climate deniers, and right wing extremists — are giving some people second thoughts. It is not much of a stretch to imagine those antics will influence how some analysts see the Great and Powerful Musk. Lots of people are growing concerned about his mental stability, particularly in light of the revelations contained in his most recent biography.
The first production Tesla Cybertruck is scheduled to be delivered to an actual paying customer on November 30, 2023. Is it possible that event could lift the company’s fortunes enough to get its share price out of its funk? Perhaps, even though Musk himself said during the Q3 earnings call, “The ramp is going to be extremely difficult. There’s no way around that, If you want to do something radical and innovative and something really special like the Cybertruck, it is extremely difficult because there is nothing to copy.”
Musk appeared on The Joe Rogan Experience again last week and brought a Cybertruck with him. During the podcast he said the electric pickup truck will weigh either 6,000 or 7,000 pounds, depending on which version people choose to buy. If that seems heavy to you, consider this. By comparison, the Ford F-150 Lightning weighs over 6,000 pounds and the Rivian R1T weighs over 8,000 pounds, according to their respective owners’ manuals, Business Insider reports. The Hummer EV is said to weigh nearly 5 tons.
Despite its bulk, Musk said the Cybertruck would be available with an optional “beast mode” that would allow it to accelerate to 60 mph in under three seconds. Bullet-proof windows will be optional as well, which may be a handy option to have in America where some people are so afraid all the time that they feel justified in murdering someone who turns around in their driveway and claims they simply acted in self defense.
The bulletproof windows will be fixed, which could present a problem during a routine traffic stop. “You can make anything bulletproof if you want, but the glass has to be very thick for it to be bulletproof, so it can’t go up and down,” Musk told Rogan.
During the interview, Rogan shot an arrow at the Cybertruck. It bounded off, leaving a small dent in the bodywork. “It looks so odd. You have to see it in the flesh,” Rogan said. “It’s the coolest looking fucking production car that’s ever been made.”
Ultimately, the question will be not how cool it looks but how well it performs the tasks people expect a pickup truck to do. Musk said there will be three demonstrations to prove the Cybertruck is bulletproof, including shooting the vehicle with a Tommy gun, a 45 millimeter shotgun, and a 9 millimeter gun. “Trucks are supposed to be tough, right?” Musk said. Cue the Mad Max tape.
If the Cybertruck is a hit with the public, the price of Tesla shares could soar and everyone will say what a genius Musk is. If it does not, the share price could sink and people will say Musk is an idiot. Could it be that both statements are true? “We’ll see,” said the Zen master.
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