Tuesday, December 5, 2023
Stocks To Sell

Tesla Stock Outlook: Is the Musk Bubble Finally Bursting?

With Tesla’s (NASDAQ:TSLA) market share slipping a great deal in the U.S., its deliveries dropping in China, and its revenue per vehicle down about 20% from highs, TSLA stock could indeed plummet in the medium term.

Luckily for Elon Musk and his crew, however, the automaker has a potential blockbuster on the way, and it has a key lever that it can push which could potentially improve its overall performance significantly.

Tesla Is Faltering on Multiple Fronts

Tesla’s share of EV sales in the U.S. plummeted to 50% last quarter, way down from 64% in Q3 of 2022. Moreover, the company’s market share in Q1 of 2023 was 59% — so its share sank nine percentage points in just three months!

Clearly, Musk’s automaker is losing some of its star power in America, with several of its competitors, including Rivian (NASDAQ:RIVN) , Mercedes-Benz, BMW (OTC:BMWYY), Hyundai, and General Motors (NYSE:GM). appearing to undermine Tesla’s dominance.

In the first nine months of 2023, Rivian’s deliveries soared 190% to over 36,000, while in Q3 the deliveries of BMW, Hyundai, and Mercedes jumped 199%-283%, and all three firms delivered at least 10,000 EVs. For its part, GM’s deliveries soared 125% year-over-year in the first three quarters of 2023 to 49,500 EVs.

And Tesla is losing market share in America even though it has reduced the prices that it charges for most of its EVs “by about 20% since August 2022,” CNBC reported.

Meanwhile, in China, Tesla’s deliveries actually dropped in September, sinking 12% compared to August, according to the China Passenger Car Association (CPCA).

A Potential Blockbuster and a Largely Untapped Lever

At long last, Tesla appears to be on the verge of officially introducing its own pickup truck, which it calls the Cybertruck. On Oct. 18, in conjunction with the announcement of Tesla’s Q3 financial results, the automaker is widely expected to disclose the official launch date of the Cybertruck.

Supposedly, the orders for the Cybertruck had exceeded 1.9 million as of July 2023. However, orders for vehicles in general can be inflated, and Musk has been known to exaggerate in the past. Still, the Cybertruck could indeed be a positive game changer for Tesla and TSLA stock.

On the other hand, I thought the automaker’s delivery truck, the Semi, would also greatly boost Tesla’s financial results, and that does not seem to have occurred, even though the EV was introduced back in December 2022.

Meanwhile fund manager Gary Black, a frequent CNBC guest, is urging Tesla to embrace major advertising initiatives for the first time. By doing so, the automaker could ensure that many more consumers are familiar with its safety features and the reduced cost of its EVs. Black believes that this strategy would be much more effective for Tesla than carrying out additional price cuts.

In May, Musk himself expressed willingness to spend more on ads, saying “There are amazing features and functionality about Teslas that people just don’t know about….and we’ll try a little advertising and see how it goes.”

But the automaker does not appear to have spent significant amounts on ads since then.

I believe that a major ad campaign could indeed meaningfully boost Tesla’s sales and market share.

Valuation and the Bottom Line on TSLA Stock

The forward price-earnings ratio of TSLA stock is 58.5. That’s high, but it’s certainly not stratospheric.

Still, analysts, on average, expect the automaker’s earnings per share to sink to $3.17 this year from $4.07 in 2022. If Musk can’t reverse the trend of falling profits and declining market share, the shares are likely to tumble sharply in the near-to-medium term.

Therefore, I recommend that investors sell the name at this point and consider buying them in the future if there are indications that the Cybertruck, an ad campaign and/or other positive catalysts can cause its growth to meaningfully accelerate and significantly lift its financial results.

On the date of publication, Larry Ramer held a long position in RIVN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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