Tesla Stock Is Down 30% In 2024. Is It a Buy?

Key Morningstar Metrics for Tesla

• Fair Value Estimate: $195.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Fair Value Uncertainty: Very High

Tesla’s TSLA stock has taken a few dents of late, with concerns building about the company’s ability to grow sales of its flagship electric vehicles. “Tesla is a high-growth stock, which means slowing growth assumptions can have an outsized impact on its price,” says Seth Goldstein, equity strategist for Morningstar.

So far in 2024, Tesla’s stock price has fallen 30.4%. That follows a 102% gain in 2023. With the stock changing hands for around $174 per share, this rapid decline has left the automaker trading at roughly two-thirds its previous peak of around $258 in December 2023.

The most recent drop came after April 2, when Tesla reported an 8.5% year-over-year decline in first-quarter deliveries. Goldstein noted that the company pointed to several one-off issues as contributing to the falloff, but added that “the larger deliveries decline points to a slowdown in demand for Tesla’s vehicles, as the company’s competitors, particularly in China, may have cut prices more than Tesla to win consumers.”

The stock took another swing days later, after a news report that Tesla was canceling its plans to build an affordable vehicle. Chief executive Elon Musk disputed the claim.

Goldstein says that other factors besides worries about Tesla are hurting the stock, and that it’s also falling victim to concerns about a broader slowdown in EV sales. “We think global EV sales will grow 20% in 2024. While this is a slower growth rate than 2023, we point to growing pains, especially in subsidy-driven EV markets such as the US and EU, as the lack of affordable EV models and fast chargers along highways still makes the majority of consumers hesitant to buy an EV,” he explains.

With Tesla’s stock trading in the mid-$170 range, Goldstein says it’s fairly valued. “While shares trade below our fair value estimate, the price is not low enough relative to our $195 fair value estimate for us to view the stock as undervalued,” he says. “Given that Tesla is a fairly volatile stock, we would need to see shares offer a larger margin of safety before recommending an entry point.”

The following are highlights of Seth Goldstein’s outlook for Tesla and its stock. The full report and more of his coverage of Tesla are available here.

Fair Value Estimate for Tesla

With its 3-star rating, we believe Tesla’s stock is fairly valued compared with our long-term fair value estimate.

We forecast that Tesla’s deliveries will be roughly flat in 2024 versus 1.8 million in 2023. We anticipate lower average selling prices, as Tesla will likely have to cut prices in key markets like China, in line with peers. We forecast automotive gross margins will be 18% in 2024, in line with 2023 results.

In the longer term, we assume Tesla will deliver a little over 5 million vehicles per year by 2030 (this includes fleet sales, an expanding opportunity for the firm). Our forecast is well below management’s aspirational goal of selling 20 million by that time, but it’s nearly 3 times the 1.8 million vehicles the company delivered in 2023.

Read more about Morningstar’s fair value estimate for Tesla stock.

Economic Moat Rating

We award Tesla a narrow moat thanks to intangible assets and a cost advantage. The company’s strong brand cachet as a luxury automaker commands premium pricing, while its EV manufacturing expertise lets it make its vehicles cheaper than its competitors.

We think Tesla’s advantages will persist and allow the firm to generate excess returns on capital over at least the next 20 years, which is the standard we hold for a wide-moat company. However, the second 10-year period carries significant uncertainty for both Tesla and the broader automotive industry, given the rapid advancement of autonomous vehicle technologies, which could transform how consumers commute and travel. As such, we view a narrow moat rating, which assumes excess returns over 10 years, as more appropriate.

Read more about Tesla’s moat.

Financial Strength

Tesla is in excellent financial health. Cash, cash equivalents, and investments stood at $29.1 billion and far exceeded total debt as of Dec. 31, 2023. Total debt was around $4.6 billion, but total debt excluding vehicle and energy product financing (nonrecourse debt) was less than $50 million.

Management has stated a preference to pay down all debt over time, and it has essentially achieved its goal. Regardless, with positive free cash flow generation and a large cash balance, we think Tesla should easily fund its growth plans in the coming years and have remaining free cash flow to return to shareholders through share repurchases if it chooses to do so.

Read more about Tesla’s financial strength.

Risk and Uncertainty

We assign Tesla a Very High Uncertainty Rating, as we see a wide range of potential outcomes for the company.

The automotive market is highly cyclical and subject to sharp demand declines based on economic conditions. As the EV market leader, Tesla is subject to growing competition from traditional automakers and new entrants. As new lower-priced EVs enter the market, Tesla may be forced to continue to cut prices, reducing the firm’s industry-leading profits. With more EV choices, consumers may view Tesla less favorably.

Tesla faces environmental, social, and governance risks. As an automaker, it is subject to potential product defects that could result in recalls, including its autonomous driving software. We see a moderate impact should this occur. Another risk involves employee retention. If Tesla can’t retain key employees, such as CEO Elon Musk, its favorable brand image could decline.

Read more about Tesla’s risk and uncertainty.

TSLA Bulls Say

• Tesla could disrupt the automotive and power generation industries with its technology for EVs, AVs, batteries, and solar generation systems.
• Tesla will see higher profit margins as it reduces unit production costs over the next several years.
• With its industry-leading technology and unique supercharger network, Tesla’s EVs offer the best function on the market, which should help it maintain its market-leader status as EV adoption increases.

TSLA Bears Say

• Traditional automakers and new entrants are investing heavily in EV development, resulting in Tesla seeing a deceleration in sales growth and being forced to cut prices due to increased competition, eroding profit margins.
• Tesla’s reliance on batteries made in China for its lower-price Model 3 vehicles will hurt sales, as these autos will not qualify for US subsidies.
• Solar panel and battery prices will decline faster than Tesla can reduce costs, resulting in little to no profits for its energy generation and storage business.