Tesla’s Value Declines Below $500 Billion As Risks Pile Up

(Bloomberg) -- Tesla Inc. shares extended their decline for 2024, pushing the electric-vehicle maker’s market valuation below $500 billion, as a round of job cuts this week further soured sentiment around the company. 

The stock tumbled about 4% to below $154 at one point on Tuesday in New York, bringing this year’s drop to some 38%. Tesla shares are the second-biggest decliner on the S&P 500 Index in 2024, erasing more than $290 billion in value since year-end. The company hasn’t closed with a market value under $500 billion since late April of last year.

The company’s troubles started in October when it warned that demand for EVs was starting to slow, but the full extent of that weakness only became apparent this month when Tesla reported first-quarter sales significantly below analysts’ expectations. Those numbers rekindled investor concerns about Tesla’s growth trajectory, and then came news that the company intends to scrap plans to make a cheaper EV and focus on building a so-called robotaxi instead. Monday’s announcement of large-scale job cuts was the latest blow. 

“The sweeping layoffs announced yesterday, amounting to a reduction in crewed production capacity, should now leave no doubt that the decline in deliveries has been a function of lower demand and not supply,” said Ryan Brinkman, an analyst at JPMorgan Chase & Co. 

That lack of demand, which is plaguing EV-makers globally, is a more dire scenario for Tesla shares than for those of other carmakers. That’s because the Elon Musk-led company commands a hefty valuation premium, partly based on its potential to dominate the EV industry of the future. Even Musk has said the company will be “worth basically zero” unless it can solve the problem of self-driving cars.

But analysts and investors say that while building a fully self-driving car is crucial for the company’s prospects, making an affordable EV is important to drive growth in the meantime, especially since most experts agree that it may take decades for self-driving cars to see mass adoption.

“While Tesla is being proactive about cost cutting this time around given the disastrous first-quarter deliveries and overall pressure on the business, this is a large cost-cutting initiative for a company in between two growth waves,” said Dan Ives, an analyst at Wedbush. 

Tesla reports first-quarter results on April 23, and the stakes are rising fast for the company. Investors will be looking for an explanation as to why it’s making a strategic pivot at a time when growth is in doubt.

“We need to hear the rationale for the cost cutting, the strategy going forward, product roadmap, and an overall vision from Musk, otherwise many investors might head for the elevators,” Ives said. 

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