tesla(NASDAQ:TSLA) This year has been a tale of two stories. The first part of the year brought a sharp drop in stock prices as investors grappled with falling global sales, profits and consumer backlash over Elon Musk’s political antics. The next story was about the rapid and significant rally in Tesla’s stock price as investors looked at future possibilities in artificial intelligence, robotics and robotaxis. Tesla’s next small hurdle has arrived, and it comes in the form of disappointing news in a key market.
Almost all automakers in China are going through difficult times. The market adopted electric vehicles (EVs) much more quickly, and the government helped subsidize domestic automakers to bolster their technology and innovation. It worked almost too well and the result was a plethora of domestic manufacturers of advanced electric vehicles creating a brutal price war. It dealt heavy blows to foreign automakers that couldn’t compete on product, price, or both. To make matters worse, the industry as a whole has a problem with excess production capacity and now Chinese automakers are rushing to export vehicles abroad, potentially bringing ultra-competitive and highly advanced electric vehicles to the doorstep of the United States, which are currently protected by high tariffs on imported vehicles.
Tesla has done better than some competitors, but it has still felt the crisis in China. Recent data suggests more of the same: Tesla sales in China fell to 26,006 units in October, the lowest level in three years. Sales fell 36% compared to a year earlier, and the sales figure was a far cry from September’s figure of 71,525, when Tesla began deliveries of the Model YL, a longer-wheelbase, six-seat version of the Model Y. Tesla’s share of China’s electric vehicle market was recorded at a modest 3.2% in October, down substantially from 8.7% in September and again its lowest level in three years.
The silver lining, although not a big deal, is that Tesla’s Chinese-made vehicle exports rose to a two-year high of 35,491 last month. Unfortunately, that silver lining only extends so far, and Tesla’s struggles are widespread. In October, Tesla sales fell 23% year over year in four markets: North America, Europe, China and South Korea, according to data tracked by Wells FargoIt’s Colin Langan.
Image source: Tesla.
With Tesla sales lagging in key markets around the world and analysts expecting a slowdown in the North American electric vehicle market after the $7,500 federal tax credit expired at the end of September, one might think Tesla stock would be in the landfills. That’s far from the case: Tesla’s valuation is still incredibly high with a price-to-earnings ratio of around 290 and its market cap is more than Ford Motor Company and general motors combined 10 times.
This is simply because investors and analysts are focused on Tesla’s future potential. In fact, shareholders have just approved at a rate of 75% a compensation package for CEO Elon Musk valued at up to $1 billion. The trick is that many of Musk’s milestones are based on future business: he needs to sell cars, but also 10 million driver assistance subscriptions, 1 million robots, and commercially operate 1 million robotaxis.
Ultimately, the shareholder vote on Musk’s compensation package comes at an ideal time for investors to also review their investment thesis on Tesla. Tesla has the ability to innovate toward a lucrative future based on artificial intelligence, robotics, and self-driving vehicles, but right now it’s still primarily an automaker and that business isn’t very good right now. Investors would do well to expect some tough quarters from Tesla as it tries to navigate turbulent waters that include an aging lineup, rising demands, negative consumer reactions and declining sales, struggling profits, a slow ramp-up in its robotaxi business, among other headwinds.
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Wells Fargo is an advertising partner of Motley Fool Money. Daniel Miller has positions at Ford Motor Company and General Motors. The Motley Fool has positions and recommends Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.
The hits keep coming for Tesla investors was originally published by The Motley Fool
