Tesla Stock Alert: Why the Sell-Off Isn’t Over After Earnings Release

Once again, the latest wave of speculation for Tesla (NASDAQ:TSL) has cooled down. This is due to a series of negative developments in recent weeks. These have led to fair-weather fans of Tesla shares dropping them like a hot potato.

Worse, the decline pales in comparison to how rapidly the electric car maker’s shares rose ahead of its earnings release, so don’t assume the dust has settled yet. While you’re free to “buy the dip” in the hope of a relief rally in the near future, there’s little sign that one will materialize.

Especially because one of the negative developments mentioned above was related to an event that would have theoretically been key to a potential rally in stocks in late summer. With that event now postponed, stocks are now at risk of falling further.

As investor enthusiasm for AI stocks wanes, concerns about the company’s core business of making electric vehicles are likely to come back into focus.

For this reason, as we explain below, your primary goal with this stock should be to limit your losses rather than doubling down.

TSLA crash: It’s not just the profits that caused the Tesla stock crash

On July 23, Tesla released its financial results for the quarter ending June 30, 2024. Although the company exceeded expectations in revenue by $1 billion, this may have been only one of a few positive aspects of the overall release.

As for profitability in the previous quarter, the latest numbers fell short of forecasts. Before the results were released, analysts expected Tesla to report earnings per share of 61 cents. The actual earnings per share were 52 cents, a decline of almost 43% year over year. In addition, operating margins also fell short of expectations, coming in at 6.3% versus the forecast 8%.

Given the lack of news on Tesla’s non-electric vehicle operations, it’s no surprise that Tesla stock fell more than 12% on the trading day following the release. And as if that wasn’t bad enough, CEO Elon Musk confirmed even more grim news on the day the results were released. Tesla’s long-awaited “Robotaxi Day” has been postponed by two months.

Due to some last-minute design changes, the event is no longer scheduled for August 8, but for October 10. Regardless of whether this is the real reason for the delay, one thing is certain: Tesla’s downward trend after the earnings release is likely to continue.

Don’t count on AI or the Cybertruck to save the day

Although the “robotaxi” catalyst for Tesla stock is currently on hold, one might think that EV or AI-related catalysts could save the day. However, in our view, we wouldn’t necessarily jump to that conclusion. As for Tesla’s core automotive business, demand weakness continues, and not just in China and Europe.

Even in the US, Tesla is facing challenges. For example, Tesla’s US market share recently fell below 50%. Established automakers have become serious competitors in the electric vehicle space, suggesting that Tesla’s leadership status will face further challenges.

As we recently pointed out, it’s questionable whether Tesla’s latest vehicle, Cybertruck, will help the struggling electric vehicle leader regain lost ground.

As for potential AI catalysts, Musk is pushing for Tesla to invest $5 billion in its privately held xAI Even if the board approves this plan, it will not necessarily help TSLA get out of sell-off mode.

The market’s growing concerns about the future growth of AI have caused stocks of companies heavily exposed to this trend to decline. Perhaps this stock, trading at 90 times forward earnings, has already priced in a big bet on AI, as if it’s already happened.

The verdict: Sell now or prepare for further price declines

Speaking of valuation, Tesla’s high multiple is a big reason why we remain bearish on the stock in the near term. TSLA has only been valued so highly because it was believed that robotaxi and/or AI breakthroughs would counteract the ongoing slump in electric vehicles.

However, given recent developments, these two catalysts are not expected to materialize anytime soon. Instead, the market will likely continue to question TSLA’s huge valuation premium over other auto sector stocks.

That’s not to say TSLA is in danger of falling to a valuation similar to that of an old-school automaker. However, it’s not impossible that Tesla will give up all of its recent gains and fall back to a price below $150 per share.

In our view, Tesla stock investors therefore have two options: sell immediately or prepare for further price declines.

Tesla shares receive a rating of D in the Portfolio Grader.

At the time of publication, neither Louis Navellier nor the member of the InvestorPlace research team primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

At the time of publication, the editor in charge did not own, directly or indirectly, any interests in the securities mentioned in this article.