Shares drop as worries mount over CEO's strategy shift towards self-driving tech amid sales slump
Elon Musk, known for challenging the status quo, is causing concern among Tesla Inc.'s investors, as reported by BNN Bloomberg.
The company’s shares are experiencing their longest rout since late 2022, having fallen nearly 19 percent over the past seven days. This decline is driven by doubts about Tesla's business strategy and a slump in electric vehicle sales.
Investors are particularly apprehensive about the potential announcement from Musk, Tesla’s CEO, during Tuesday’s earnings call. They worry he might cancel the rollout of a cheaper model and shift focus to developing a fully self-driving vehicle.
This move is fraught with regulatory and commercial challenges.
This shift would be a significant departure from analysts' expectations and could leave Tesla without a near-term growth catalyst, especially as the company is expected to report its first quarterly sales drop since the pandemic began in 2020.
Barclays Plc analyst Dan Levy, who maintains a neutral rating on Tesla’s stock, highlighted that issues have shifted from vehicle sales fundamentals to concerns over a strategic pivot.
According to Levy, Tesla is facing an extremely challenging situation with a sharp delivery miss, the risk of stagnant volume growth in 2024, and additional pressure on margins.
The stock has declined nearly 43 percent this year to $142.05, marking a 15-month low and making it the second-worst performer in the S&P 500, trailing only behind Globe Life Inc.
Technical analysts suggest that any further disappointment in the upcoming earnings report or Musk’s conference call could exacerbate the stock's decline, noting that it has already dropped below a crucial support level of $150.
Todd Sohn, an ETF, and technical strategist at Strategas Securities, described Tesla’s stock as being in “no man’s land,” with significant downside potential.
Although Musk has confirmed the unveiling of the Robotaxi in August, he has not clarified the plans for the cheaper vehicle, leaving open the possibility that its production might only be delayed rather than completely abandoned.
However, the broader concerns about Tesla’s strategic direction are heightening investor anxiety at a time when the company is already grappling with slowing growth and reduced margins.
Vehicle deliveries for the first quarter fell short of analysts' expectations by the most significant margin in at least seven years.
Financial forecasts have been adjusted downward, with first-quarter earnings expectations halved to 52 cents a share and revenue projections cut by 22 percent to about $22.3bn over the past 12 months. Estimated free cash flow has also been significantly reduced.
Despite these challenges, the current negative sentiment could set the stage for a potential rebound if the earnings miss is less severe than anticipated.
Steve Sosnick, chief strategist at Interactive Brokers LLC, noted that while expectations are low, past performance has shown Tesla shares typically drop following quarterly reports.
Investors are increasingly seeking protection against further declines, with a noticeable increase in demand for short-term puts that pay off if the stock drops by 10 percent, indicating heightened concerns about Tesla’s near-term financial health.
