Tesla’s (NASDAQ:TSLA) second-quarter financial results confirmed that the electric vehicle maker’s fortunes are fading fast, making now the right time to dump Tesla stock.
The abysmal Q2 print, combined with growing signs that the company is quickly losing market share to competing automakers, has led to a continued erosion in Tesla stock. While the share price has had a few bursts of upward momentum, it is down 13% on the year and nearly 50% lower than the all-time high it reached in November 2021. Sadly, it doesn’t look like the stock will recover and test new highs anytime soon.
Investors still holding onto Tesla stock need to think long and hard about where the company and its share price go from here.
Another Bad Print
After delivering terrible financial results for this year’s first quarter, shareholders were holding out hope that Tesla would deliver a bounce-back quarter with its Q2 print. That didn’t happen. Instead, Tesla reported EPS of 52 cents, which badly missed Wall Street forecasts that called for earnings of 62 cents. The company’s profit was down 45% year-over-year. Sales weren’t much better.
For the April through June period, Tesla reported total revenue of $25.50 billion, which was slightly ahead of Wall Street forecasts of $24.77 billion. Total sales were up 2% from a year earlier. However, Tesla reported that its revenue generated from electric vehicle sales declined 7% year-over-year. Worse, the company’s profit margin fell to 14.4% from 18.7% in the second quarter of 2023. CEO Elon Musk said Tesla continues to struggle with declining sales and rising competition, especially in China.
Declining Market Share
While Tesla can still claim to be the top seller of electric vehicles in the U.S., it is losing ground fast to competitors such as Ford Motor Co. (NYSE:F) and General Motors (NYSE:GM). Earlier this year, Tesla’s share of the U.S. electric vehicle market fell below 50% for the first time, a downward trend that analysts say will be hard to reverse as competition intensifies in coming years.
According to data from market research firm Cox Automotive, rival automakers saw a 33% year-over-year increase in their electric vehicle sales in the U.S. during the first half of this year, while Tesla’s sales decreased by 9.6%. There are now more than 100 different electric vehicle models available for consumers to choose from in the U.S., only five of which are made by Tesla. The company is developing a lower-priced EV that it hopes will appeal to price-conscious consumers, but there are no guarantees.
Vehicle Fatalities
As if things couldn’t get any worse, Tesla has just been hit with a report in The Wall Street Journal detailing fatal crashes involving the company’s vehicles and its autopilot self-driving mode. The Journal report concludes that there are big flaws with the camera system Tesla uses for its self-driving mode, which has resulted in dozens of accidents across the U.S., many of them causing death.
Bloomberg News had a similar story recently about Tesla’s autopilot system and resulting crashes. The conclusion of the Bloomberg piece is that we’re years, if not decades, away from developing truly reliable self-driving cars. This is bad news for Elon Musk, who said on Tesla’s Q2 earnings call that people should only own TSLA stock if they understand and appreciate the company’s autonomous driving ambitions that are best exemplified by the company’s plans to bring robotaxis to the marketplace.
More immediately, analysts have raised concerns that the reports of Tesla’s autopilot feature causing fatal crashes could open the company up to expensive litigation and lead to further reputational damage.
Sell Tesla Stock
It seems that each day brings more bad news about Tesla. For many investors, it might be difficult to understand and categorize the litany of problems facing the automaker. The bottom line is that Tesla has lost the competitive edge it enjoyed as competing automakers have brought more advanced, safer, and cheaper electric vehicles to market. Now, Tesla is left to try and pivot to new moonshot ventures that include humanoid robots and supercomputers, none of which are close to being ready.
The end result is slumping sales, eroding profit margins, declining market share, and a sinking share price. Tesla stock is not a buy.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Joel Baglole 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.