Story Stocks^®

European sales plunge and rivals leap ahead, creating selling pressure on Tesla (TSLA) today. According to FT.com, the U.S.-based EV maker posted a 40% yr/yr drop in sales across Europe in February, giving up 1 pt of overall market share to 1.8%. At the same time, China-based EV maker BYD (BYDDF) reported year-end results today, ending 2024 with revenue surpassing that of TSLA's for the first time since 2018.

While by no means uplifting, the unfavorable headlines are not surprising. For instance, earlier this month, Bloomberg mentioned that TSLA's sales in Germany nosedived by 76% yr/yr in February. A week after that development, Bloomberg reported that shipments sunk by 49% over that same period in China. Combining these reports with a souring macroeconomic backdrop amid tariff uncertainty underpinned a 53% stock wipeout from December 17 highs to March 10 lows.

There is certainly no shortage of headwinds facing TSLA, from tariffs and weakening consumer sentiment to an eroding brand image and intensifying competition. However, there are silver linings surrounding TSLA that are worth discussing.

• TSLA said it would release its self-driving feature in China yesterday after completing regulatory approval, launching a free trial of its FSD service in the region sometime between now and April 16. TSLA is aiming for a full rollout of FSD this year. The development sparked a rally yesterday as intense competition in China has had plenty to do with technological superiority.
  • EV rivals BYD, NIO (NIO), XPeng (XPEV), and Li Auto (LI) are launching Level 2 autonomous driving systems (vehicles can steer, accelerate, and decelerate), with reports finding that an estimated 15 mln new cars sold in the region will have at least Level 2 autonomous capability. Consumers may have been gravitating toward other OEMs in China out of fear that TSLA will not have self-driving anytime soon.
• CEO Elon Musk recently held an "all-hands" meeting to make the long-term vision of the company clear. Part of this includes building on the success of the Model Y, which has been the best-selling SUV globally for two straight years. The Model Y is incredibly popular in China when stacked against the competition. The updated Model Y started local deliveries at the end of February, which could explain why sales slumped during the month as consumers awaited the newer model. As such, deliveries in March could quickly reaccelerate.
  • Reports have noted that during the second week of March, China's new vehicle registrations rose to the highest in Q1, underpinned largely by Model Y shipments.
• The stock's substantial decline has given it a more palatable valuation, going from a forward P/E of 145x to around 91x. Similarly, TSLA's forward sales multiple stands at around 7.5x, which is more attractive than the 13.0x valuation from December.

TSLA still has a lot of work to do to reengage buyers and spark a more aggressive rally. Economic hurdles will not be easy to clear, nor will overcoming the recent deterioration in brand image. However, with the stock already slashed in half, plenty of these concerns may already be priced in, limiting the downside.