Tesla’s (NASDAQ:TSLA) recent performance has raised significant concerns, especially as prominent investor Ross Gerber has publicly expressed doubts about the company’s future. Gerber, who has been a long-time supporter of Tesla, has started reducing his position, citing declining sales and waning consumer interest in Tesla’s cars and robots. While Tesla continues to showcase impressive advancements in AI and energy storage, these concerns highlight potential cracks in the company’s foundation. Let us take a closer look at the biggest problems associated with Tesla as of today and try and understand Gerber’s rationale for dumping the stock.
Declining Sales and Rising Competition
Ross Gerber’s concerns about declining Tesla sales are not without merit. The company has faced increasing competition from both established automakers and new entrants in the electric vehicle (EV) market. Despite Tesla’s early dominance, the landscape is changing rapidly. Competitors are offering more affordable and feature-rich EVs, which has led to a saturation in some markets. Additionally, Tesla’s aggressive price cuts to maintain market share have pressured its margins, raising questions about the sustainability of its business model. The growing number of used Teslas on the market further exacerbates the issue, as it indicates a potential oversupply and declining resale values. This scenario suggests that Tesla may struggle to maintain its growth trajectory, especially if it fails to differentiate its products in a crowded marketplace. The company’s reliance on constant innovation and new product releases, while impressive, may not be enough to counteract these competitive pressures, making it crucial for investors to consider the long-term implications of these trends.
The Robotaxi and Full-Self Driving (FSD) Dilemma
Tesla’s focus on autonomous driving and the upcoming Robotaxi product has been a cornerstone of its growth narrative. However, the development and deployment of Full-Self Driving (FSD) technology have been fraught with delays and regulatory hurdles. While Tesla has made significant progress in FSD, the technology is not yet at a stage where it can operate without human supervision. This limitation has delayed the rollout of Tesla’s Robotaxi service, which was originally expected to be a major revenue driver. The postponement of the Robotaxi product unveil and ongoing concerns about the technology’s reliability have added to investor uncertainty. Furthermore, the regulatory environment for autonomous vehicles remains uncertain, particularly in key markets like the U.S. and Europe. Tesla’s ambitious timeline for FSD and Robotaxi deployment may be overly optimistic, and any further delays could significantly impact the company’s valuation and investor confidence. This uncertainty underscores the need for caution when evaluating Tesla’s future growth prospects based on its autonomous driving technology.
Energy Business Growth vs. Automotive Challenges
While Tesla’s energy business has shown remarkable growth, with record profits from energy storage deployments, the automotive side of the business faces ongoing challenges. The company’s ability to maintain profitability in its core automotive segment is being tested by rising production costs, supply chain disruptions, and the need for aggressive pricing strategies. Tesla’s focus on expanding its energy business, including the ramp-up of Megapack production in China, is a positive development. However, the profitability of this segment alone may not be enough to offset the challenges in the automotive sector. The automotive business still accounts for the majority of Tesla’s revenue, and any weakness in this area could have a significant impact on the company’s overall financial health. Investors should be cautious about placing too much emphasis on the growth of Tesla’s energy business while overlooking the potential risks in its core automotive operations.
Final Thoughts
Source: Yahoo Finance
Tesla’s stock has given negative returns in the past 12 months and the runup to its earnings fizzled out after a rather dull performance. While the company remains a leader in the EV and clean energy sectors, with a strong track record of innovation and growth. the concerns raised by Ross Gerber’s stake sale including the ongoing challenges in the automotive sector and the uncertain future of autonomous driving, suggest that investors should approach Tesla with caution. While the company’s long-term prospects may seem promising, the short- to medium-term risks appear significant which is why we believe that investors should ideally avoid Tesla at current levels at least until the uncertainty-linked volatility goes down.
