Tesla shares extend slump as China move highlights key demand risk

Updated at 8:38 AM EDT

Tesla  (TSLA)  shares moved lower Friday, extending its run as the worst-performing stock on the S&P 500, as the carmaker continues to face challenges in its most important market.

Tesla shares have shed more than $240 billion in value this year as investors count the cost of its strategy to win market share while sacrificing profits and assess the impact of fading EV demand in key markets around the world. 

Tesla itself warned investors in January that vehicle-delivery growth rates would be "notably lower" than 2023 levels, while CEO Elon Musk said profit margins would improve only on the back of central-bank interest-rate cuts.

Tesla's profit margins, probably the most closely tracked metric by analysts on Wall Street, narrowed to 17.6% over the three months ended in December, down from a 23.8% margin over the year-earlier period.

Weaker-than-expected sales figures from China, where volumes fell to the lowest levels in more than a year last month, are also adding to overall pressures on Tesla's aggressive delivery targets.

Wells Fargo analyst Colin Langan, in fact, forecast negative sales growth for next year, and flat volumes this year, as well as "the possible loss of the luxury brand premium" for the group as a whole. 

Tesla's China Challenge 

Tesla is also facing a huge wave of competition in China, its biggest and most important market, where sales over the first two months of 2024 rose only 6.8% from a year earlier.

"Chinese car companies are the most competitive car companies in the world," Musk told investors in January. "I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think if there are not trade barriers established, they will pretty much demolish most other companies in the world."

That's led to what Bloomberg News has reported to be a trimming of production at its Shanghai factory, with shifts for the Model Y midsize SUV and Model 3 sedan pared back to five days per week from the usual pace of around 6 1/2 days. 

Related: Analyst reveals new Tesla price target, Mag 7 risk as shares extend slump

CFRA analyst Garrett Nelson noted that the "high-fixed-cost nature of auto manufacturing" continues to pressure Tesla's profit margins. But he added that declining battery costs could be a "silver lining" for the beaten-down shares.

"The good news is that the stock appears to have largely priced in these concerns and we see catalysts on the horizon with the likely unveiling of its Next Gen EV model and Roadster later this year," said Nelson, who lowered his Tesla price target by $40 to $245 a share late Thursday.

"Additionally, Tesla should benefit from less competition, as traditional automakers moderate their EV-growth plans," he added.

More Tesla:

• Analysts update Tesla stock outlook after yet another EV price change
• Cathie Wood buys $35 million of beaten-down tech stock

Analyst reveals new Tesla price target, Mag 7 risk as shares extend slump

Morgan Stanley analyst Adam Jonas, meanwhile, said that while he and his team "acknowledge the challenges to EV demand near-term ... we believe that Tesla is a relative winner in EVs long term."

Jonas also noted that Tesla's core auto business represents only around $68 of his team's $320 price target. He'd previously argued that the group's AI-powered DoJo supercomputer, which supports its drive to build autonomous vehicles and license its Full-Self-Driving technology, could add more than $500 million to Tesla's market value.

“We believe Tesla has significant attributes to be valued as an [artificial-intelligence] beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first,” Jonas wrote. "If there was ever a time for Tesla to potentially post [GAAP earnings before interest and taxes], it may be this year.”

Tesla shares were marked 3.8% lower in premarket trading to indicate an opening bell price of $166.26 each, a move would extend the stock's year-to-date decline to around 33%.

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