Why Is Tesla Stock Down? And Should You Start Buying Now

Tesla, the leader in electric vehicles, has recently seen a notable decline in its stock price, causing concern among investors and enthusiasts. Why is Tesla stock down, and is now a good time to invest? This article will explore the reasons behind Tesla’s recent market performance and assess whether it offers an opportunity for potential buyers or serves as a warning to steer clear.

Why Is Tesla Stock Down?

Ouch. Shares of electric-car maker Tesla (TSLA 1.65%) were slammed earlier this week, falling nearly 5% on Tuesday. Wall Street sold off shares after the company reported worse-than-expected first-quarter deliveries. With the stock down more than 30% this year and over 20% over the last three years, it’s been a rough run for Tesla shareholders. Investors might wonder if now is the time to “get greedy when others are fearful” and buy the dip or if Tesla’s underperformance is a red flag signaling deeper issues.

SCREEN POST | Pexels | With the stock down more than 30% this year and over 20% over the last three years, it’s been a rough run for Tesla shareholders.

Tesla’s Disappointing First-Quarter Deliveries

Tesla’s first-quarter updates were less than stellar, casting shadows on its short-term outlook. During its fourth-quarter update in late January, management had already set the tone by projecting that vehicle volume growth in 2024 would be “notably lower” than in 2023—a prediction that unfortunately held true. In the first quarter of 2024, Tesla produced 433,371 fully electric vehicles, a decrease from about 495,000 in the fourth quarter of 2023 and 441,000 in the previous year’s first quarter. Delivery figures were similarly disappointing, with first-quarter 2024 deliveries at 386,810, down from approximately 485,000 and 423,000 in the respective quarters of 2023.

Several factors contributed to this decline. Management cited issues such as the early phase of the production ramp of the updated Model 3 at their Fremont factory, factory shutdowns due to external events like the Red Sea conflict, and an arson attack at Gigafactory Berlin. Moreover, a broader economic squeeze, exacerbated by higher interest rates, has likely dampened consumer demand for new cars. Tesla CEO Elon Musk has pointed out that the affordability of monthly payments plays a crucial role in car purchases, which has been impacted by rising interest rates.

Emily Rella | MSN | Tesla CEO Elon Musk has pointed out that the affordability of monthly payments plays a crucial role in car purchases, which rising interest rates have impacted.

Tesla’s Ongoing Struggles and Future Uncertainties

Beyond immediate production and delivery woes, Tesla faces significant strategic challenges. The company is currently in a lull between two major product cycles—the first driven by the rollout of Models 3 and Y, and the next anticipated to be spurred by a new, higher volume, lower-cost vehicle. However, uncertainty looms large, and there is no firm timeline for this next-generation platform.

This sales slump and uncertain future are particularly problematic in the capital-intensive, scale-dependent automotive industry. Product development is costly and challenging but crucial for maintaining profitability and cash flow. Although Tesla has a robust cash reserve and a strong customer base, these strengths are currently offset by the slowdown in sales and the unclear path forward.

Is Now the Time to Buy Tesla Stock?

Given the current challenges and the stock trading at about 39 times earnings, Tesla’s valuation might still need to reflect a compelling buy point for cautious investors. Those interested in owning Tesla shares might prefer waiting for the stock price to drop further, reducing the risk of overpaying. Additionally, waiting for more precise signals of a return to robust top-line and bottom-line growth could be prudent.

Cottonbro studio | Pexels | Investors interested in owning Tesla shares might prefer waiting for the stock price to drop further, reducing the risk of overpaying.

Conclusion

While Tesla continues to innovate and hold a critical place in the electric vehicle industry, current shareholders and potential investors should approach it with caution. The key to deciding whether to buy during this dip will be closely monitoring Tesla’s ability to navigate its immediate challenges and advance its product development. For now, patience might be more rewarding than jumping in amidst ongoing uncertainties.