Tesla's value falls below $500 billion in blow to stock bulls

(Bloomberg) — Tesla Inc. shares continued to… Its decline for 2024, pushing the electric car maker's market value below $500 billion, as this week's round of job cuts highlighted how much the company's growth has slowed.

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The stock fell as much as 4.8% to below $154 at one point Tuesday in New York, and is down nearly 37% this year. Tesla shares are the second-biggest decline on the S&P 500 in 2024, wiping out about $290 billion in shareholder wealth. The company has not closed with a market value of less than $500 billion since late April of last year.

“The reduction in hiring and capacity has far-reaching implications for the hypergrowth narrative that remains embedded in Tesla's stock price, suggesting fundamental downside risks to the stock,” said Ryan Brinkman, an analyst at JPMorgan Chase & Co.

The layoffs announced Monday, “which amount to a reduction in crew production capacity, should leave little doubt that the decline in deliveries was the result of lower demand rather than supply,” Brinkman said.

The company's problems began in October when it warned that demand for electric vehicles was starting to slow, but the full extent of that weakness only became clear this month when Tesla reported first-quarter sales well below analysts' expectations. Those numbers have reignited investor concerns about Tesla's growth trajectory, which have been exacerbated by news that the company intends to scrap its plans to make a cheaper electric car and focus on building so-called robotaxis instead.

The pivot – in which Musk said the company will unveil a robotaxi in August – comes as Tesla's earnings outlook is quickly darkening, as it has repeatedly resorted to lowering the price of its cars to attract buyers.

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New hit

Analysts said the announcement of widespread job cuts was just the latest blow, but it took away demand risks. Furthermore, two key executives have left the company, putting further pressure on sentiment.

Fading interest from consumers, which electric car makers are experiencing globally, is a riskier scenario for Tesla shares than for other automakers. That's because the Elon Musk-led company is getting a huge valuation premium, based in part on its ability to dominate the electric vehicle industry in the future. However, Musk himself has said the company's value will be “zero” unless it can solve the self-driving car problem.

But analysts and investors say that while building a fully self-driving car is crucial to Tesla's prospects, making an affordable electric car is important to driving growth in the meantime. Especially since most experts agree that it could take decades for self-driving cars to be widely adopted.

“The near-term bull case for Tesla is that investors are waiting for the launch of a low-cost platform that will significantly revitalize growth,” said David Wagner, portfolio manager at Aptus Capital Advisors. “But the market realizes this may be unlikely, as the $25,000 car already exists today — and it's the Chinese company BYD that makes it.”

Chinese electric car maker BYD overtook Tesla as the world's largest seller of electric cars in the last three months of 2023. Although the company does not sell its cars in the United States, it has several affordable electric cars in its lineup.

Tesla reports first-quarter results on April 23, and risks are rising quickly for the company. Investors will be looking for an explanation as to why a strategic shift was made at a time when growth is in doubt.

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(Inventory movement updates are in the second paragraph, and comments start in the third.)

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