It wasn’t fun being one Tesla (NASDAQ:TSLA) Shareholder. What was once a darling of Wall Street has collapsed again. A series of poorly received financial reports has given investors pause.
As of this writing, this is “Magnificent Seven“The stock has fallen 59% from its peak price recorded in November 2021. Should you invest in Tesla shares now on a decline?
Missed the target
To be honest: Tesla’s first quarter The financial results (for the period ended March 31) were very discouraging. Sales fell 9% year over year, driven by a 9% decline in vehicle deliveries and lower average selling prices.
Management might have eased some of investors’ concerns by emphasizing that the entire electric vehicle industry is currently facing challenges. Demand isn’t as strong as industry managers had hoped.
To stimulate this demand, the company has implemented several price cuts to maintain its market share. This was necessary given the increasing competitiveness of the industry. There are many manufacturers that have launched electric vehicles in recent years, overtaking Tesla’s lead.
Lower prices reduce profitability. The company reported a Gross margin from 25.3% in 2021, but fell to 17.4% in the last quarter. It’s hard to say when this metric will start to improve.
The current macroeconomic environment makes matters even more difficult. All other things being equal, automakers want lower interest rates. From a customer perspective, lower credit costs reduce monthly payments, making a new vehicle more affordable. With inflation proving stubborn, the Federal Reserve may need to keep interest rates higher for longer, presenting another ongoing headwind for Tesla.
The latest financial results show a company that continues to have major problems. Why are shares up about 15% since that earnings release?
As is often the case, optimistic shareholders seem enthusiastic about the CEO Elon Musk says. On the first quarter earnings call, he mentioned Tesla’s product roadmap with plans to “accelerate the introduction of new models” early next year. The market seems optimistic that Tesla will finally release a cheaper model that can help the company compete more effectively with Chinese competition.
High expectations
Musk continues to try to convince investors that this company shouldn’t be valued like a typical automaker. He is a good storyteller who can generate great enthusiasm for Tesla could one day be. The ultimate goal is to launch a robotaxi service that turns every single one of its cars on the road into a high-margin money-making machine for its owners.
But we are still a long way from that. It depends on the company’s ability to introduce fully autonomous driving features, which is a big question mark. For what it’s worth, it will provide more information about it this goal in August.
Even if the stock is in a downward spiral, I think it’s expensive at a price-to-earnings ratio of 42.5. The market still gives Musk the preference here.
However, I think we need to look at the facts in front of us. At its core, it is still an automobile company. And it is struggling with economic and industry challenges. Its innovative and disruptive qualities were not enough to prevent the decline in sales and profits. These are worrying signs for a company that has a history of producing financial results similar to those of a software company.
Unless you seriously believe that Musk can achieve his long-term goals within a reasonable time frame, it’s best to keep Tesla stock on your watchlist for now and not add it to your portfolio.
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in Tesla and recommends them. The Motley Fool has a disclosure policy.
With shares down 59%, should you invest in this Magnificent Seven stock? was originally published by The Motley Fool