As anticipated, Tesla skeptics are raising concerns following this year’s impressive $500 billion rally.
With rival automakers capitalizing on increasing demand for electric vehicles, these competitors present a significant challenge for Tesla in the coming two years. This comes at a time when CEO Elon Musk appears to be preoccupied with various high-profile endeavors, including social media, space exploration, and advancements in artificial intelligence.
Recent findings from the Markets Live Pulse survey indicate that out of 630 contributors, 54 percent identified intensified industry competition as a primary risk, while 26 percent pointed to Musk’s unpredictable behavior and decisions as another significant concern for shareholders.
Matthew Tuttle, CEO of Tuttle Capital Management, highlighted Musk’s unpredictability as one of the top risks for Tesla in a recent interview. “Musk is just such an unpredictable person,” he stated.
In light of declining profit margins, a substantial 67 percent of survey participants suggested that Musk should devote more attention to the auto manufacturer. This caution follows Tesla’s astonishing 128 percent surge this year, bolstered by renewed investor enthusiasm for major tech companies and Musk’s assertion that fully autonomous vehicles are on the horizon.
Although Tesla currently maintains a considerable lead over both established manufacturers and startups, its high market valuation is contingent on the assumption that it can sustain this dominance in a future where electric vehicles become ubiquitous.
However, competitors are starting to accelerate their efforts. Earlier this month, China’s BYD reported record sales for the second quarter, delivering 352,163 fully electric vehicles, showcasing its rapid growth relative to Tesla, which sold 466,140 EVs globally—also an all-time high.
Yet, some argue that many of Tesla’s competitors are still facing initial challenges. For example, Ford Motor Company experienced a decline in U.S. electric vehicle sales in the second quarter after halting production earlier this year at its Mexican plant which manufactures the Mustang Mach-E.
Despite these setbacks, analysts and investors caution that Tesla’s current advantage could diminish quickly. Government policies, such as the U.S.’s Inflation Reduction Act, are encouraging other automakers to increase their electric vehicle offerings. Tesla’s shares trade at a premium, at 75 times forward earnings, allowing little margin for error. In contrast, General Motors trades at about six times estimated profits, and Ford at approximately nine times.
Craig Irwin, an analyst at Roth Capital Partners, emphasized the long-term risk of competition for Tesla. “The current lead over the competition is very real,” he remarked, “but it is crucial to understand how this may narrow.”
Maintaining market share comes with its own challenges. Approximately 63 percent of MLIV Pulse respondents expect Tesla to continue reducing prices to increase volume, further squeezing its profit margins. Additional cuts could significantly decrease these margins and narrow the gap with competitors.
The effects of recent price reductions on Tesla’s profits will be revealed when the company releases its second-quarter results this Wednesday. Profit estimates for the quarter have already diminished by 29 percent compared to six months ago.
“Winning stocks grow revenue and margins. Both are necessary,” noted Nicholas Colas from DataTrek Research.
Furthermore, the “Musk-risk” associated with Tesla shares gained attention last year when the billionaire made headlines with his acquisition of social media platform Twitter and sold substantial amounts of Tesla stock to finance the deal. The subsequent pressure from these sales, combined with concerns about Musk’s focus on Tesla, weighed heavily on the company’s shares.
Since that time, Twitter’s own valuation has significantly decreased. Around 67 percent of survey respondents believe Twitter will never regain its original value from Musk’s acquisition.
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