Tesla Inc. (TSLA, Financial) has seen its shares continue to fall throughout 2024, with the company's market capitalization dropping below the $500 billion mark. This decline is attributed to a series of layoffs that highlight the slowdown in the company's growth.
On Tuesday in New York, Tesla's stock price plummeted by as much as 4.8%, dropping below $154 at one point, and has decreased by approximately 37% over the year. This makes Tesla the second largest loser in the S&P 500 Index for 2024, wiping out nearly $290 billion in shareholder value. This is the first time since late April of the previous year that the company's market value has fallen below $500 billion.
JPMorgan Chase & Co. analyst Ryan Brinkman has indicated that the reduction in workforce and production capacity signifies a significant shift away from the rapid growth previously priced into Tesla's shares, posing a considerable downside risk for the stock. According to Brinkman, the recent layoffs, which represent a cutback in production capabilities, clearly demonstrate that the drop in deliveries is a result of waning demand rather than supply constraints.
The company first signaled a slowdown in the demand for electric vehicles (EVs) in October, but the true extent of this downturn became evident this month when Tesla's first-quarter sales fell short of expectations. This shortfall has reignited concerns about Tesla's future growth prospects, further exacerbated by the company's decision to cancel plans for a more affordable EV model in favor of developing a robotaxi.
This strategic shift, announced by Elon Musk for an August unveiling, comes at a time when Tesla's profitability is under pressure, with the company having to reduce vehicle prices to maintain buyer interest.
The announcement of significant job cuts is the latest setback for Tesla, underscoring the demand challenges it faces. This situation is compounded by the departure of two key executives, dampening investor sentiment further.
While Tesla faces a declining interest in its EVs, a challenge shared by global EV manufacturers, its situation is particularly precarious. Tesla's valuation heavily relies on its potential to dominate the future EV market. However, Musk has himself stated that the company's value could plummet to "basically zero" if it fails to solve autonomous driving.
Despite the emphasis on achieving full self-driving capabilities, analysts and investors argue that releasing an affordable EV is crucial for Tesla's immediate growth. This is especially true as widespread adoption of self-driving cars may still be decades away. Aptus Capital Advisors' portfolio manager David Wagner notes that the anticipation for a lower-cost Tesla model has been a significant growth driver, but the market is now skeptical, especially since affordable EV options, like those from China's BYD Co., already exist.
BYD Co. has recently surpassed Tesla as the leading global seller of electric cars, offering several competitively priced models. With Tesla set to report its first-quarter results on April 23, the stakes are high for the company to justify its strategic pivot during a period of uncertain growth.
