Not so Magnificent: Tesla’s Declining Stock Casts Shadows On Its Continued Association With Elite Group

2024 is becoming an unforgettable year for Electric Vehicle (EV) maker Tesla. The automaker’s stock has taken a significant beating, threatening its position within an elite group of stocks: the Magnificent Seven. Some analysts have even questioned the firm’s inclusion in the group in the first place.

Tesla’s woes have shown no signs of respite since the turn of the year. The stock closed trading at $248.42 on January 2nd. But it fell to $177.54 on March 12th, a nearly 28% YTD drop. Consequently, the EV maker’s market cap had shrunk by 29%, from $789.90 billion in 2023 to $555.52B at press time.

This development has drawn swift reaction from various analysts. The consensus is that Tesla’s dwindling fortunes result from waning EV hype. Interest in these vehicles peaked in 2021, driven by their novelty to a large extent, but this has since tapered off across the industry.

Tesla’s sales in its home market, the US, and China, the largest EV market, have shrunk considerably. Increasing competition from local manufacturer BYD has further compounded the firm’s woes in China. Additionally, a case of suspected arson at its Berlin plant has impacted its capacity. 

Not a Magnificent  7 Stock

As stated earlier, some analysts are painting an ominous picture for the carmaker. Roger Montgomery is one of them. He wrote in a recent commentary about Tesla’s troubles:

“It was always right to question Tesla’s inclusion in the Magnificent 7. They are a group of companies that only have share price appreciation in common. However, Tesla has always been a bit of an outlier because it lacked one thing the other six have – pricing power.”

He suggests that investors are finally waking up to the reality that EV manufacturers are economically not different from regular carmakers. To him, Tesla’s ascent and ongoing decline are reminiscent of fads. The hype around the firm and EVs, in general, had caused investors to misprice its stock. However, these are now factual in their assessment of EV’s potential and the firms that pioneered them.

A Growth Company That’s Not Growing

Wells Fargo has been even more scathing in its analysis of the Elon Musk-led outfit. The Financial Services provider terms Tesla as a “growth company with no growth.” It singled out the EV maker’s H2 2023 sales, growing by a paltry 3% compared to its H1 figures despite reducing its prices by 5%.

Aware of the shifting market sentiment, Musk’s firm has warned about its 2024 growth prospects. It has acknowledged that it may register “notably lower growth” this year, sentiments that many industry players agree with.

But despite the grim forecasts, Musk remains optimistic about Tesla’s performance this year. Speaking in a recent interview, he said, “Stocks go up and down, but what really matters is ‘are we making and delivering great products?’”