Tesla’s stock price has taken a hit, falling 2.42% on Monday, as investors digest troubling European sales data and a warning from a prominent fund manager about the company’s growth trajectory.
Alarming Sales Trends
Gary Black, Managing Partner at Future Fund, has highlighted alarming sales trends, noting that April European sales are projected to drop 47% year-over-year. This decline can no longer be attributed to Model Y production changes. Black predicts that FY’25 Tesla deliveries will be -6% year-over-year versus FY’24, compared to Wall Street’s estimated 3% decline.
Disconnection from Projected Earnings
Black has expressed concern that Tesla’s current valuation appears disconnected from its projected earnings. The stock is trading at a significantly higher multiple than its historical average, with its price reflecting over 130 times estimated non-GAAP earnings for fiscal 2025 and more than 90 times for fiscal 2026. In comparison, Tesla’s average one-year forward price-to-earnings ratio over the past three years has been around 76 times.
European Challenges
Spain exemplifies Tesla’s European challenges, with April sales plunging 36% year-over-year to 571 units, according to industry group ANFAC. Meanwhile, Spanish EV sales overall surged 54%, with Chinese competitors like BYD, MG, and Omoda posting triple-digit percentage gains. Tesla’s European market share has declined from 2.9% to 2% in just one year amid heightened competition and brand challenges reportedly linked to CEO Elon Musk’s political activities.
First-Quarter Results
The company recently reported the first-quarter results, showing total revenue down 9% year-over-year, with automotive revenue dropping 20% to $13.97 billion. Despite gaining 23% in April, Tesla shares remain down over 26.11% year-to-date.
Conclusion
Tesla’s European sales slump is a cause for concern, and investors are advised to keep a close eye on the company’s growth trajectory. With the stock trading at a higher multiple than its historical average, there is a risk of a correction if the company fails to meet its projected earnings. As the EV market continues to evolve, Tesla will need to adapt to changing consumer preferences and increased competition to remain a leader in the industry.