Tesla Faces $350 Billion Market Value Erosion Amid Poor Stock Performance

First-quarter struggles mark one of its worst periods

Declining delivery forecasts dent investor confidence Tesla Inc.’s ($TSLA)  stock has recently shown some resilience after a significant downturn earlier this year, yet investors remain hesitant due to uncertainties about the company’s recovery prospects.

With first-quarter delivery figures expected next week, the decreasing projections have set the stage for a potentially disappointing update. Signs point to weakened demand for Tesla’s vehicles in the near future.

“Recent reductions in delivery estimates have severely impacted investor confidence. Turning the first-quarter results into a positive narrative will be challenging, even with a slight exceedance of expectations,” stated Nicholas Colas of DataTrek Research. He added that Tesla’s valuation is heavily influenced by its automotive sector’s performance.

The stock’s dismal year, marked by a 28% drop compared to the S&P 500’s 10% rise, stems from various factors. The primary concern is the dwindling demand for electric vehicles amidst intensifying competition. This quarter is on track to be one of Tesla’s worst, with the company being the largest loser in the S&P 500 this year. Since reaching a yearly peak in July, Tesla’s stock has forfeited all its gains, erasing over $350 billion in market value.

With analysts lowering delivery, revenue, and profit forecasts, the optimism for Tesla has significantly declined. This sentiment is reflected in the increasing interest in options that hedge against further stock declines, indicating growing investor caution.

Furthermore, Tesla’s ambition to be a leader in artificial intelligence, particularly in self-driving technology, faces skepticism. The complexity of developing autonomous vehicles casts doubt on the near-term viability of this technology. Tesla’s stock recently entered an oversold phase, suggesting it may have dropped too rapidly. A better-than-expected delivery report could potentially spark a brief rally, considering the stock’s current negative sentiment.

Despite the immediate challenges, long-term supporters believe Tesla’s situation could improve as global electric vehicle adoption increases, supported by political incentives. However, near-term issues, especially around Tesla’s primary electric vehicle business, will likely persist until there’s more clarity on sales trends.

Additionally, the entry of Xiaomi Corp. ($XIACY) into China’s electric vehicle market, the largest globally, poses a new challenge. The reception to Xiaomi’s debut electric vehicle, the SU7 sedan, will be closely monitored, with the Chinese market anticipated to contract for a second consecutive year.