Tesla headwinds are intensifying as stock hits new low

Equities 8 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  Just three months ago Tesla sounded confident in their growth outlook but since then the share price is down 48% reflecting a growing nervousness over the demand picture which looks to be deteriorating in China and Europe, the two largest EV markets in the world. In addition, higher interest rates will continue to impact the equity valuation and financing costs over time as the car industry remains one of the most capital intensive industries in the world.


Tesla's growth outlook looks less and less possible

Elon Musk is known for overpromising and so far it has cost him little, with his most optimistic estimate being 50% growth in deliveries over a multi-year horizon. However, Tesla shares are increasingly facing stiff headwinds with the share price down 61% from the peak in early November 2021. The initial repricing of Tesla was due to higher interest rates impacting capital intensive industries but also companies with excessive equity valuation a category Tesla has been part of for years. The past three months have seen Tesla shares down 48% and with interest rates more or less flat over those three months, Tesla shares have not reacted to the cost of capital. Instead, the market is now beginning to price in a deteriorating demand picture for EVs.

That demand for EVs has come down in China is not new and has been an ongoing theme the entire year which has also been reflected in Chinese EV stocks. Adding to the negative demand story, Thomas Schmall the CEO of VW’s components division said yesterday that surging European electricity prices are hurting demand in Europe and elevated battery materials prices are also keeping prices elevated on EVs. According to Schmall it is only the US market that is still looking good because of the US Inflation Reduction Act relative to expectations a couple of months ago, but the US is also the smallest EV market of the three major markets. Tesla’s high expected growth rate is assuming that electricity production can expand rapidly and prices will remain low and this key assumption is now looking doubtful.

Longer term the slowdown in EV adoption due to elevated electricity prices will mean that competitors can catch up on their designs and production processes for EV manufacturing eroding some of the first-mover advantage that Tesla has enjoyed. Given the slowdown that is arguably taking place in the world and now also in EV adoption it is difficult to comprehend the consensus estimate for 2023 revenue at $116bn up 39%. This expectation seems out of touch with the incoming information and also the falling share price.

Yesterday’s move lower in Tesla shares was interesting given the positive equity market and among Saxo clients we observed that retail investors were net buyers of shares. Under the assumption that Saxo’s client base is a good proxy for general retail investor behaviour we have a situation where institutional investors are becoming realistic about EV makers such as Tesla and then retail investors still buying the hope and dreams of Elon Musk.

14_PG_1
Tesla share price | Source: Saxo
14_PG_2
14_PG_3
Tesla fundamentals | Source: Bloomberg

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.