Following an emotionally charged third-quarter earnings call where CEO Elon Musk announced gross margins for the company dropped to 17.9 percent (down from 25.1 percent the previous year), Tesla shares briefly fell to a six-month low in October. Added to slowing company growth, a much-delayed launch of the Cybertruck losing the company first mover advantage in the EV truck market, and tempered expectations for the company’s growth in the future, shareholders are starting to get spooked. Of the seven highest-valued companies in the S&P 500 —Amazon, Microsoft, Apple, Google, Facebook, Nvidia, and Tesla — Tesla has had the worst 2023 numbers.
For years Tesla’s market cap valuation has been significantly higher than its earnings. Investors have claimed this is because Tesla’s value is held in its ability to grow exponentially in the future. The company’s driver assistance software, or its long-promised $25,000 EV, or its humanoid robot have driven its bullish stance. Elon’s history of over promising and under-delivering may finally be coming home to roost, as some investors are starting to believe some of these fanciful larks may never come to fruition.
“I have a hard time being bullish on things beyond cars, especially technologies that don’t work yet and may never work, particularly the full-self-driving software,” an analyst told Bloomberg.
Rising interest rates, high inflation, and waning electric car demand are all hurting Tesla’s sales, and the company’s aggressive push to lower the cost of its cars hasn’t proven to significantly boost demand. Deutsche Bank analysts recently wrote that a second wave of EV consumer demand is waiting for a cheaper entry point and larger charging infrastructure build out. Maybe Tesla has tapped its current market for the time being, and as a result 2024 projections are well below expectation.
Tesla’s price-to-earnings ratio is now nearly double that of Amazon’s and more than three times higher than Facebook’s. That alone is bringing its high valuation into question. Consider also that its P/E ratio is around 72.65 to one, while GM’s is 4.2 to one, and Ford’s is 6.89. The competition in its own industry is valued significantly lower than Tesla.
In spite of all this, Musk believes Tesla could balloon to a $4 trillion dollar valuation in the near future, but the company will need to “knock the ball out of the park several times” in order to make that reality. That seems unlikely.