Should you invest in Tesla?

Tesla’s latest financial results revealed a sharp drop in deliveries and production. Will the decline of the former stock market darling continue or should you invest in Tesla at a depressed price?

Tesla CEO Elon Musk and his young son visit the company's electric car plant in Gruenheide near Berlin, eastern Germany, on 13 March 2024.
(Image credit: Odd Andersen - Getty Images)

It has been a bad week for Tesla after the electric car manufacturer’s first quarter results caused concern among investors. 

Deliveries were down more than 8% compared to a year before, falling more sharply than analysts expected. Production also fell by 1.6%. Both measures were impacted by supply chain issues, a fire in one of Tesla’s factories, and weakening demand in key markets such as China.

The company’s share price plummeted 4% in response to the news, adding to the losses many investors have already faced since the stock peaked in November 2021. So far this year, Tesla is not just the worst performing of the Magnificent 7 tech stocks, it is also the second worst performer in the S&P 500

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Against this backdrop, we look at the investment case for the company going forward. Can Tesla turn it around? What are the growth prospects for the electric vehicle market? And is now a good time to invest in Tesla at a more depressed share price?

The ups and downs of Tesla’s share price

Until late 2021, Tesla told a remarkable growth story. The stock boomed in 2020, rising by more than 700% and making it the world’s most valuable car company. 

The pandemic threw environmental issues into sharp focus, and many governments around the world introduced e-vehicle incentives. Tesla benefitted from these trends and, after significant growth in 2020, it was added as a constituent of the S&P 500. This prompted further gains. 

More recently, however, the story hasn’t been so positive. The share price is down almost 60% compared to its peak in November 2021, and the latest quarterly results paint a worrying picture for investors.

What challenges is Tesla facing?

In the first quarter of 2024, Tesla’s deliveries fell to their lowest level since 2022. This reflects the broad range of challenges the company is currently navigating – from a tough economic backdrop to supply chain disruption. 

Firstly, consumers are being squeezed by inflation and higher interest rates. This is impacting sales for many businesses – but those which produce high value items like electric cars are often hit particularly hard in periods like this. 

E-vehicles come at a premium, and Teslas are more expensive than most. When households tighten their purse strings, luxury items are often the first thing to go. What’s more, many of the incentives that governments once offered electric-vehicle drivers are now being peeled back, which is weakening demand further.

Supply chain issues have also wreaked havoc for the company since the start of the year. Houthi attacks in the Red Sea meant the car manufacturer had to halt production for almost two weeks at the end of January in its Berlin factory. The same factory then suffered an arson attack in March, which prompted another week-long pause in production. 

Furthermore, the company has suffered a decline in demand in one of its key markets – China. The Chinese economy had a tough year in 2023, suffering an ongoing property market crisis and weak spending. On top of this, “anti-American sentiment and bruised consumer confidence have taken their toll”, says Danni Hewson, head of financial analysis at AJ Bell. She believes that Tesla will need to “do more to restore investor optimism” in the market.

When you add the company’s maverick chief executive Elon Musk into the mix, there are a lot of factors that could make investors jittery. Musk isn’t exactly known for being a steadying presence. His penchant for rogue tweets has even caused the company’s stock price to move on several occasions, getting him into hot water with the regulator. 

Investors will be weighing all of these factors up as they contemplate whether to buy, sell, or hold onto their Tesla stock. 

Should you invest in Tesla?

In Hewson’s view, the latest results feel “more like a bump in the road than a stop light”. That said, she adds that “caution will undoubtedly be in the minds of investors considering Tesla’s investment journey going forward”. A key question for many is: will the electric vehicle revolution rage on, and will Tesla be able to hold onto its market share and grow its profits? 

Demand for electric vehicles has weakened in some key markets recently. However research organisation BloombergNEF still expects global passenger EV sales (which includes battery electric vehicles and plug-in hybrids) to increase by 21% in 2024, with 70% of those being fully electric.

While that growth forecast is down from 33% in 2023, Bloomberg adds that “battery tech continues to get better, costs continue to come down, and there are now 4 million public charging points installed around the world”. These trends will “pav[e] the way for further growth in 2025 and 2026”, the organisation says, “when a slew of cheaper models is set to hit Western markets.”

Indeed, Elon Musk has said that a cheaper Tesla model is coming in 2025, which could help the company tap into a new market. One key reason for the recent slowdown in sales in China has been competitors cutting prices to win consumers. A lower price tag could go some way to rectifying this.

What’s more, as we move closer to global net zero targets, the shift towards electric vehicles should accelerate. For example, from 2035, the sale of new petrol, diesel and hybrid vehicles will be banned in the UK. Lots of other countries worldwide are implementing similar deadlines.

With this in mind, some investors might still be drawn to Tesla. But does the recent drop in its share price make for a cheap entry point? Morningstar analysts have said that they currently view the company as “slightly undervalued, trading around 15% below [their] fair value estimate”. This might sound like an attractive discount, but it is worth asking yourself whether the share price could fall further before bottoming out. 

It all depends on whether the headwinds described previously are a short-term blip, or symptomatic of longer-term challenges. Investors will be keeping a close eye on the company as it releases its results over the coming quarters, hoping to establish more of a trend. 

Katie Williams

Katie has a background in investment writing and is interested in everything to do with personal finance and financial news. 

Before joining MoneyWeek, she worked as a content writer at Invesco, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. 

She studied English at the University of Cambridge and loves reading, writing and going to the theatre.