1706543099 Tesla Stock Plunged 27 in 2024 Is It Time to

Tesla Stock Plunged 27% in 2024: Is It Time to Buy on Dips?

Tesla Stock Plunged 27 in 2024 Is It Time to

With the new year already about a month old, investors may still be focused on reevaluating their portfolios. This includes looking at the companies that performed well last year and thinking about whether they can do so again in 2024.

Just look at the electric vehicle (EV) manufacturer Tesla (NASDAQ:TSLA). Its shares rose 102% last year. But as of Jan. 25, they are down 27% so far in 2024.

Should investors buy this top EV stock on a decline?

The fighting continues

Tesla just released its fourth-quarter numbers, and they missed Wall Street's expectations. Revenue of $25.2 billion increased just 3% compared to the fourth quarter of 2022. Shareholders may not be used to this, considering Tesla has typically posted double-digit revenue growth like clockwork over the last decade.

As in 2023, Tesla is in difficult times. Soaring interest rates represent a major headwind for automakers as they make purchasing cars less affordable for consumers. To combat this, Tesla implemented multiple price cuts to support unit growth. This explains why the company was able to deliver 20% more vehicles in the fourth quarter than in the same period last year.

The competitive landscape is also becoming more intense, making things more difficult for Tesla. The company competes with numerous competitors not only in the United States but also internationally, particularly in China. This could lead to continued price pressure in the future.

The adverse environment had a huge impact on Tesla's profitability. Between 2020 and 2022, the company increased its net profit margin from 2.3% to 15.4%, clearly showing economies of scale. However, these improvements have reversed course.

In the fourth quarter, Tesla's gross margin and operating margin were significantly lower than in the fourth quarter of 2022. Selling cars at lower prices does not help the bottom line.

However, investors should be aware that profitability could move in the right direction in the future. “In our vehicle business, we continue to see improvements in our unit costs even though we are in the early stages of Cybertruck adoption,” CFO Vaibhav Taneja said on the fourth quarter 2023 earnings call. “As a result, our automotive gross margin improved compared to the previous quarter.”

The story goes on

What happens to Tesla's margins over the next few quarters should be what shareholders are paying most of their attention to. This will prove whether Tesla is truly a differentiated premium automotive company or like every other mass-market automaker out there.

It depends on your perspective

That's not to say it's all negative news for Tesla. There are certainly reasons to be optimistic. Tesla is a leader in the electric vehicle industry and has an innovative and disruptive culture that supports its strong brand recognition. These factors should benefit the company in the long term.

The company is also building up competencies in the area of ​​artificial intelligence, particularly with its supercomputer Dojo. The millions of Tesla vehicles on the road allow the company to collect and analyze massive amounts of data that could one day enable full self-driving capability. And this could lead to outsized financial success for Tesla.

Ultimately, I think your interpretation of whether the stock is a buy right now in its downtrend comes down to a simple assessment.

If you believe that stocks trading at a price-to-earnings ratio of 58.6 are cheap today and that Tesla will overcome its near-term challenges and return to strong growth and profitability sooner rather than later, then that's a no -Brainer portfolio supplement.

If you don't believe these things, it's an easy decision to pass on the stock until there are more concrete signs of improvement.

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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in Tesla and recommends them. The Motley Fool has a disclosure policy.

Tesla Stock Plunged 27% in 2024: Is It Time to Buy on Dips? was originally published by The Motley Fool