...it is all about Expectations.
...the predicament the EV sector faces now is not for the lack of growth, it is that the EV sector stocks have front-ended their actual growth potential.
...stocks were up considerably on the basis of huge growth expectations, and when reality finally caught up with hyped-up expectations, these EV stocks would mean revert, many actually crashed.
...this is the typical eventual outcome for every single overhyped overloved sectors in the market.
...there is a difference between a good stock and the valuation at which it is considered fair price based on prevailing conditions. Tesla is a great example of that.
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Magnificent No More:TSLA's Fallout |
At the end of last year, Tesla Inc. (Nasdaq: TSLA) was riding high — leading the market as a member of the “Magnificent Seven.”
Throughout 2023, these seven Big Tech stocks delivered an average return of 71% … versus an average return of just 6% for the remaining 493 stocks in the S&P 500 index.
And even among the Magnificent Seven, none commanded a higher premium (in terms of forward price to earnings) than TSLA:
Now — just a few short months later — it’s become the worst-performing stock in the S&P 500.
TSLA is down 30% year-to-date and more than 60% from its all-time high of $407 per share back in 2021.
And many analysts (myself included) believe it still has further to fall.
It would be easy to blame TSLA’s misfortune on the antics of its eccentric CEO, Elon Musk.
But like I explained in a past issue of
Banyan Edge, this abrupt reversal reflects a much deeper change…
The “EV Revolution” has stalled out.
Anatomy of an EV Collapse
Prior to 2022’s bear market, electric vehicle (EV) makers reached the same kinds of high valuations we’re now seeing in today’s AI stocks.
Hugely bullish projections propped these valuations up — with EV sales expected to grow as much as 70% year-over-year by some industry professionals.
Sure enough, EV sales growth has been phenomenal.
Yet numbers are still well short of those astronomical projections (by half, in fact).
As a result, smaller EV automakers have continued to sink even as the broad market recovered.
Onetime EV breakout Nikola Corp (Nasdaq: NKLA) is down nearly 60% over the last year…
Shares of Lucid Group (Nasdaq: LCID) fell 63% in the same time…
And Fisker (NYSE: FSR) investors have lost 92% just since January of 2024!
For the remaining die-hard EV investors, there are now few practical alternatives to TSLA.
TSLA wasn’t a bad alternative, either.
Love him or hate him, Elon Musk has succeeded in bringing EVs to the masses unlike any other.
He took over a company that produced boutique electric Roadsters and evolved it to offer vehicles like the Model 3 and the Model X with its iconic gullwing doors.
These are the kinds of cars people love to own and drive (my colleague Charles Mizrahi drives one). As a result, the Model 3 broke into the top 10 list of America’s top-selling cars back in 2021. And sales have been outstanding ever since.
At the end of last year, Tesla was on track for record vehicle deliveries — even though it fell short of Musk’s ambitious annual target of 2 million vehicles.
But as you saw above, TSLA’s valuation was still entirely too high for what the stock has to offer. And shares are
still overpriced.
Let’s take a quick look at its
Green Zone Power Ratings to see why:
TSLA’s score is quite interesting here.
As you can see, it rates extremely high for both Quality and Growth. That reflects the company’s success and its steady growth over the last few years. But its scores for Value and Size are both disastrous.
TSLA’s erratic performance over the last few years gives it a Volatility rating of 6 out of 100, and even Momentum is working against it.
In short, there might be a good business here. But not one you’d want to buy (or even own) at today’s prices.
