Few entities dominate their core market quite like electric vehicle (EV) manufacturer Tesla (NASDAQ:TSLA). Even with startups competing aggressively in the space, the concept of EVs remains practically synonymous with Tesla. That said, consumer pressures point to the company dragging down the stretch. Therefore, in the near term, I am tactically bearish on TSLA stock.
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TSLA Stock Must Move Beyond the Low-Hanging Fruit
While being first doesn’t always guarantee success, it can certainly yield significant rewards. A case in point is TSLA stock. On an adjusted basis, shares were trading at a little over a buck in 2010. Undeniably, then, those who invested heavily in Tesla during its early years saw life-changing returns. However, at some point, the company must have a strategy that moves beyond the low-hanging fruit.
To clarify the above point, no one is silly enough to dismiss the raw power of the Tesla brand. As TipRanks reporter Vince Condarcuri stated earlier this year, the company’s Model Y took the title as the world’s top-selling car. Data from Jato Dynamics revealed that the Model Y sold 267,200 units worldwide.
Fundamentally, this groundbreaking achievement is impressive for two reasons. First, Tesla beat Toyota (NYSE:TM) and its top-selling Corolla (at 256,400 units) and RAV4 (at 214,700 units) models. Second, the Model Y costs significantly more than the latter two budget-friendly vehicles. At $47,490, the Model Y’s price dwarfs the Corolla’s $21,550 and the RAV4’s $27,575.
Under this framework, it would seem that consumers will continue opening their wallets and buying high-priced EVs. However, other data points suggest that Tesla has already addressed the low-hanging fruit — the customers that can readily afford its vehicles.
Looking ahead, management will need a plan to attract customers that don’t necessarily have the most bountiful financial resources. Put another way, TSLA stock may be priced to a standard it can’t quite meet.
Some Cracks Appear in Tesla’s Armor
Although arguably no one would question Tesla’s dominance in the EV sector, at least some cracks are starting to appear in Tesla’s armor. As a result, investors shouldn’t be in too much of a hurry to bet everything on TSLA stock.
For example, TipRanks contributor Steve Anderson recently pointed out that TSLA stock fared well in the charts despite fading vehicle delivery numbers in China. Citing the China Passenger Car Association, Anderson reported that Tesla sold 64,285 Chinese-made EVs in July. One year ago, the Shanghai Gigafactory failed to deliver even half that figure.
Still, to Anderson’s point, just a month prior, the Gigafactory delivered 31% more. Interestingly, China has been struggling with less-than-desirable economic progress, which may contribute to declining EV demand.
More critically, in the U.S., the average age of vehicles on its roadways continues to hit record numbers. In 2022, this metric reached a then-record 12.2 years. This year, data from S&P Global Mobility confirmed that this statistic hit 12.5 years. For sedans, this automotive category spiked to 13.6 years.
Essentially, inflation is starting to catch up with consumers. During the worst of the COVID-19 pandemic, policymakers made the decision to backstop the impact of the crisis. However, such actions don’t occur in a vacuum. One of the major consequences of the monetary and fiscal stimulus programs is that now, fewer households can afford luxuries such as new EVs.
Instead, consumers are choosing to drive their (combustion) cars until the wheels fall off. That’s not a great backdrop for TSLA stock.
Investors Have Come to Expect Too Much
Perhaps one of the more worrying headwinds for TSLA stock might not have anything to do with the underlying business at all. Instead, investors may have come to expect too much from Tesla. If it can’t continue delivering against elevated hopes, TSLA could suffer.
For instance, it’s wonderful that Tesla posted revenue of $81.46 billion last year. However, moving forward, growth will not be so easy to come by. In 2008, the company rang up sales of $15 million. By 2011, revenue had reached $204 million; by 2013, sales hit $2.01 billion, about 10x higher than 2011’s figure.
However, it took until 2018 – when Tesla posted revenue of $21.46 billion – for the EV maker to do another 10x. Stated differently, the growth rate is noticeably fading as Tesla addresses the low-hanging fruit. Now, it must grab the higher-hanging fruit, which is a much more difficult proposition, especially in this economy.
Is TSLA Stock a Buy, According to Analysts?
Turning to Wall Street, TSLA stock has a Hold consensus rating based on 10 Buys, 13 Holds, and four Sell ratings. The average TSLA stock price target is $263.33, implying 4.7% upside potential.
The Takeaway: TSLA Stock Enters a New Phase
Ultimately, the market doesn’t look backward. While there’s no denying that Tesla dominated the EV space since the early 2010s, what it does next is the most important factor for current investors. However, the data and the broader economic conditions don’t necessarily signal encouragement. That’s why investors should be careful about TSLA stock.
