Tesla (NASDAQ:TSLA) has been the undisputed champion of electric vehicle stocks over the past decade. Indeed, without Tesla, perhaps this industry may not exist in its current fashion. Electrification and strong EV sales drive high valuation for auto maker, but its lead has been diminishing. BYD Co. (OTCMKTS:BYDDF) and other Chinese rivals have surpassed Tesla in sales.
Bulls may point to Tesla’s future growth prospects in EV, energy, and technology as reasons to hold this stock. But the company’s fundamentals are weakening, with revenue growth slowing to 9% in Q3 and inventories building up. Let’s dive into a few reasons why Tesla’s market share may continue to deteriorate further from here.
Chinese EVs Are Selling More
In 2023, BYD outpaced Tesla as the top electric car company, selling 525,409 BEVs in Q4 compared to Tesla’s 484,507 deliveries. Despite Tesla’s yearly lead, BYD’s swift rise highlights China’s growing EV industry, fueled by robust government backing.
This expansion prompted Chinese automakers like BYD to enter Europe, triggering EU investigations into state subsidies. China targets NEVs to comprise 20% of new car sales by 2025 and be the “mainstream” by 2035, surpassing these goals earlier than expected.
BYD emerged as a global new energy vehicle sales leader, securing a spot in the top 10 global car sales for the first time. Its success in Q4 2023, surpassing Tesla in EV sales, can be attributed to a remarkable increase in international exports. Exports grew by 334.2% and reaching over 70 countries across six continents.
Elon Musk Tries Hard to Be Optimistic
Elon Musk reiterated his vision for Tesla to surpass the combined market cap of Apple and Saudi Aramco in about five years, emphasizing the need for exceptional execution, creative products, and managing expansion.
Apple and Saudi Aramco currently hold market caps of $2.99 trillion and $2.13 trillion, respectively, while Tesla’s highest market cap reached $1.23 trillion in November 2021. Musk acknowledged the challenges but expressed optimism about Tesla’s potential to achieve a market cap approximately twice that of Saudi Aramco.
Tesla is poised for another record quarter in electric vehicle (EV) deliveries, although falling short of CEO Elon Musk’s ambitious 2 million annual target.
After boosting year-end sales with increased model discounts, the EV market leader plans to sustain a 50% average annual growth rate. In 2024, challenges include the end of federal tax credits in the US and Germany, prompting potential price cuts despite anticipated relief in interest rates and battery ingredient costs.
Highly Volatile
TSLA stock concluded 2023 positively amid the market’s robust performance, driven by optimism linked to a potential “Fed pivot.” However, uncertainties about the timing or occurrence of this pivot in 2024 might reintroduce doubts, leading to heightened share volatility and potential short-term declines for TSLA.
Apart from market dynamics, Tesla faces potential negative impacts from internal factors, such as the recent concerns about the Cybertruck, which may contribute to a significant downturn in TSLA shares.
The upcoming earnings report on Jan. 24, highlighting aspects like margin declines or a less optimistic full-year sales outlook, could prompt investors to exit the stock. Unlike the previous year, TSLA’s price performance might face a challenging beginning in 2024.
Avoid TSLA Stock Now
Despite some uncertainties, Tesla’s long-term outlook appears positive. Morgan Stanley analysts recommend exploring self-driving tech licensing and high-margin products/services, anticipating a 27% earnings growth by 2030.
While certain investors who have held TSLA stock for the long-term may have a nice margin of safety, I think adding new capital to this stock right now is a dangerous proposition. There’s simply too much competition in the EV market, margins are likely to deteriorate, and Tesla’s growth fundamentals aren’t what they once were.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.