Tesla (NASDAQ: TSLA) surpassed a $1 trillion valuation for the first time in October 2021. Its electric vehicle (EV) business was generating explosive growth, and investors were highly optimistic about the company's future.
But Tesla crashed out of the trillion-dollar club in 2022, when the S&P 500 (SNPINDEX: ^GSPC) entered a bear market. Its stock still hasn't reclaimed its all-time high, because the company's EV sales growth is now slowing on the back of softening demand and fierce competition across the industry.
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However, Tesla stock has soared 30% since former President Trump won reelection on Nov. 5. CEO Elon Musk played a big role in Trump's campaign, and it's possible Tesla will benefit from the new administration's business-friendly policies.
Tesla's valuation is finally back above $1 trillion. However, by one traditional valuation metric, its stock is now more expensive than all of its peers in the trillion-dollar club, including Nvidia. Here's why investors should be cautious about chasing the rally.
Tesla delivered 936,222 EVs in 2021, representing growth of 87% compared to the previous year. It then delivered 1.3 million cars in 2022, an increase of 40%, followed by 1.8 million cars in 2023, up 38%.
Do you notice a trend? Tesla's sales growth is slowing, and currently falling way short of Elon Musk's 50% annual goal. In fact, Tesla's 1.29 million deliveries through the first nine months of 2024 represented a 2.3% drop compared to the same period last year. That means the company is on track for an annual sales decline for the first time since it launched its flagship Model S in 2011.
Demand is softening across the EV industry right now. A report by Goldman Sachs suggests consumers are worried about the resale value of EVs and a lack of rapid-charging infrastructure. Plus, high interest rates and elevated living costs are pushing potential buyers toward cheaper gas-powered vehicles instead.
Tesla also faces growing competition, especially from low-cost manufacturers like China-based BYD. The BYD Seagull sells for under $10,000 in China, which is the world's biggest EV market, and Tesla simply can't compete at that price point. The Seagull could also enter Europe in 2025, which is another market where Tesla has a strong presence.
Musk thinks Tesla's EV deliveries could grow by 20% to 30% next year. However, he recently scrapped plans to build a low-cost vehicle to compete with the likes of BYD, so it's hard to see where that growth will come from.