Tesla shares have tanked 34% this year. Investors raise doubts over whether the EV maker will return to form

Published Sun, Apr 7 20248:05 AM EDT

Tesla 's lost its way. The dominant U.S. manufacturer of electric vehicles once praised as an auto industry innovator has come under mounting pressure in recent months, grappling with growing China competition and waning demand, forcing the Elon Musk-led company to cut prices to lift sales. The issues have rattled investors, dragging down shares by 34% since the start of 2024 and ushering in concerns about Tesla's health and growth potential. The latest U-turn is a sharp reversal after Tesla had soared to a peak market value surpassing $1.2 trillion. Today it's worth about $525 billion. TSLA YTD mountain Tesla shares in 2024 Even the bulls have grown worried, with Morgan Stanley analyst Adam Jonas admitting last week that Tesla's woes could temporarily drive the stock as low as $100 — his worst case scenario. Wedbush's Dan Ives called a first-quarter slump in deliveries an "unmitigated disaster." Wall Street is a lot less optimistic than it was. The number of analysts holding a buy-equivalent rating on Tesla is down to just 33%, versus 53% at the end of March 2023, according to FactSet. "We view this as a seminal moment in the Tesla story for Musk to either turn this around and reverse the black eye 1Q performance," Ives said in a note to clients. "Otherwise, some darker days could clearly be ahead that could disrupt the long-term Tesla narrative," Ives continued. While some investors expect emerging themes such as artificial intelligence, a robotaxi project or autopilot involving full self-driving cars to boost Tesla's long-term growth, even those betting on the stock are braced for a long, bumpy road to recovery. Disappointing investors Tesla's inability to meet estimates and boost demand for its models has spurrred the newfound skepticism. The stock dove 12% one day in January after missing analysts' fourth-quarter estimates and warning of slow growth. It dropped more than 6% last week after reporting those disappointing first-quarter deliveries. "The market's not loving stocks right now that can't beat earnings," said Michael Sansoterra, chief investment officer at Silvant Capital Management. "Unfortunately, [Tesla's] life cycle in this particular moment, and what the market is willing to pay for, are at odds." He attributed Tesla's recent quarterly shortfalls to deteriorating profit margins owing to price cuts used to stir demand. CapWealth chief investment officer Tim Pagliara thinks investors and Wall Street baked in "unrealistic expectations" into Tesla's valuation, with a far higher multiple than incumbent manufacturers such as General Motors, Ford and Toyota. To be sure, Tesla isn't alone in its recent distress as enthusiasm for EVs has waned, partly due to a newfound love affair with hybrid vehicles instead. The EV market has suffered in recent months as companies such as Ford have been forced to rethink plans , citing the industry's higher costs relative to internal combustion engine vehicles. The industry's also been stalled by the need for hefty investments in infrastructure, such as charging stations, and technological advancements in battery storage, size and capacity, Sansoterra explained. "It's not done, it's not mature," the Silvant Capital manager said. "It's still a growing industry that's got a ways to go if you think back to the [personal computer] days." Looking beyond electric vehicles Other investors are holding out hope for Tesla, viewing ventures beyond its bread-and-butter auto business as key to the company's recovery. During an interview with CNBC's Andrew Ross Sorkin this week, Ark Investment Management CEO Cathie Wood said Tesla shares could hit $2,000 over the next five years as artificial intelligence, robotics and energy storage themes play out. The comments from Wood came one day after her firm purchased nearly $40 million worth of Tesla shares. "This reminds me very much of 2018-19," she said. "We're in a bit of a trading range, and we will be until more and more analysts and investors understand how provocative the convergence of these three technologies is going to be." Wood isn't alone in backing Tesla. Altimeter Capital's Brad Gerstner revealed last month a fresh bet on the EV maker , citing its future artificial intelligence prospects and saying the stock already reflects investor bearishness. While the stock will be volatile, he argued that backing Elon Musk and AI was a "no-brainer." A lack of investor understanding of the value of these alternative businesses and their future contribution to Tesla profits is plaguing Tesla shares, according to Corestone Capital's Will McDonough. TSLA 1Y mountain Tesla shares over the last year "Valuing Tesla as a car company is akin to valuing Amazon as a book sale company," the investor said. "You're just not seeing the full picture here." But even those bullish on the stock's long-term potential expect a rough patch ahead. "There are definitely concerns in the marketplace around demand" for Tesla vehicles, said Robert W. Baird senior research analyst Ben Kallo. "Some investors are willing to look out [farther] … but there are still the near-term worries. We're in for a choppy quarter or two more." Tesla is due to report first-quarter financial results in less than three weeks, on April 23.