Investors who added Tesla (NASDAQ:TSLA) positions in early 2024 likely face disappointment, with many hoping for a potential rebound. Formerly the world’s largest EV maker, there are clear catalysts with this company that support the incredibly high valuation of Tesla stock.
That said, there are reasons why this stock remains depressed. Investors are increasingly viewing Tesla as a car company (something I argue it is, and has been since its inception), requiring a lower multiple. Price cuts, increased competition, and other factors are certainly driving a bearish narrative in this name right now.
Here are two reasons why I think TSLA stock remains a strong sell among mega-cap tech-related names right now.
Deliveries and Tesla Stock
Tesla reported a drop in quarterly deliveries, missing Wall Street estimates amid stiff competition and price cuts. Tesla stock fell 5.2%, though I thought the daily decline could have been a lot worse, with the company only losing $30 billion in value.
The decline marks a shift for Tesla, which is now clearly facing a slowdown because of market conditions and competition.
With deliveries down 8.5% in Q1, Tesla produced 433,371 vehicles but missed analyst expectations of 454,200. More importantly, the company only delivered less than 370,000 vehicles, meaning it’s over producing.
This should lead to further strain on prices, and greater dealer incentives to get these models off the lot.
In the absence of a true model refresh, Tesla’s offerings are beginning to look stale to certain investors. There’s the reality that Musk’s personality is a turn-off for many potential buyers, who happen to be largely in Democratic states.
Xiaomi Poses Threat
During a recent event, Xiaomi’s CEO Lei Jun announced that the company’s SU7 model would be priced at 215,900 yuan and the Max version at 299,900 yuan.
Within the first 27 minutes, Xiaomi received over 50,000 orders, marking its entry into the electric car market amidst a global sales slowdown and price competition. Xiaomi now competes with EV giants like Tesla and BYD, pricing in a way that undercuts Tesla’s Model 3 starting price in China.
Mr. Lei highlighted that the SU7 would boast a minimum range of 700km (435 miles), surpassing the Tesla Model 3’s 567km. Xiaomi aims to leverage its shared operating system across devices to attract its extensive customer base.
As the third-largest global smartphone seller with a 12% market share, Xiaomi’s SU7, teased since last year, draws comparisons to Porsche models. The SU7 production will start in Beijing, where the company is expected to produce 200,00 vehicles every year.
Losing Hope for TSLA
A survey by market intelligence firm Caliber shows declining interest among potential Tesla buyers in the United States, partly attributed to CEO Elon Musk’s polarizing image.
Despite aggressive price cuts boosting sales last year, Tesla is anticipated to announce subdued quarterly sales soon. According to Reuters, caliber’s “consideration score” for Tesla plummeted from 70% in November 2021 to 31% in February.
Tesla isn’t the brand it once was. There are other options out there, and like it or not, competition in China and other key markets is only going to heat up.
I really don’t see how Tesla’s valuation is justified anymore, considering the market now views the company increasingly as a car maker, and less as a software or tech company. I’d argue that’s all Tesla has been since its inception, but that take has fallen on mostly deaf ears.
I think Tesla could have much more downside from here, and it’s a strong sell for me. Get out while you still can.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.