Insights

Why Tesla Stock Is Still Falling

What happened
Stock markets continued to slide on Monday, with the S&P 500 falling 1.9% through 9:50 a.m. ET and the Nasdaq down 2%.
Shares of electric car leader Tesla (NASDAQ: TSLA) didn’t escape the selling — indeed, they’re down three days in a row now, falling a further 3.8% Monday morning, caught up in the general feeling of dread on Wall Street.
Image source: Getty Images.

So what
What’s got investors so upset? Worries about rising interest rates are one factor — the yield on 10-year Treasury notes just hit 3.185%, its highest level since late 2018. The Federal Reserve is raising rates in order to combat inflation, of course, but because higher interest rates make it more expensive to buy a car, or a home, higher rates are from at least one perspective themselves inflationary.
They also depress consumers’ desire to spend, potentially hurting the economy and even tipping it into recession. And when you combine these two fears — a stagnant economy and inflation — you get investors’ big, chimerical fear of “stagflation.”
In addition to this overarching fear, Wall Street media gave Tesla investors additional factors to worry about over the weekend. First, Barron’s reported General Motors is stepping up competition in the electric cars market as it begins selling its GMC Hummer electric pickup and prepares to introduce a Cadillac Lyriq electric SUV. Separately, Reuters reports this morning that Volkswagen CEO Herbert Diess is vowing to replace Tesla as the world’s biggest seller of electric vehicles by 2025.    
Now what
Well and good, but I have to say that at this point the old saw “if wishes were fishes …” comes to mind. GM and Volkswagen may both wish they could overtake Tesla — and they might even succeed in time. But here in the U.S. for example, Tesla still commands a 70% market share in sales of electric vehicles. Suffice it to say that GM and Volkswagen have some catching up to do if they want to overtake the market leader.  
Meanwhile, Tesla has already overcome the biggest objection to the stock, first proving it can earn a profit in 2013, according to historical data from S&P Global Market Intelligence, and then putting together a string of 11 straight profitable quarters from 2019 through 2022 to prove it can maintain profitability. With a 15.5% operating profit margin today — twice GM’s profit margin and nearly twice Volkswagen’s — all indications are that, despite the competition, Tesla is still doing just fine.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy. –

What happened

Stock markets continued to slide on Monday, with the S&P 500 falling 1.9% through 9:50 a.m. ET and the Nasdaq down 2%.

Shares of electric car leader Tesla (NASDAQ: TSLA) didn’t escape the selling — indeed, they’re down three days in a row now, falling a further 3.8% Monday morning, caught up in the general feeling of dread on Wall Street.

Image source: Getty Images.

So what

What’s got investors so upset? Worries about rising interest rates are one factor — the yield on 10-year Treasury notes just hit 3.185%, its highest level since late 2018. The Federal Reserve is raising rates in order to combat inflation, of course, but because higher interest rates make it more expensive to buy a car, or a home, higher rates are from at least one perspective themselves inflationary.

They also depress consumers’ desire to spend, potentially hurting the economy and even tipping it into recession. And when you combine these two fears — a stagnant economy and inflation — you get investors’ big, chimerical fear of “stagflation.”

In addition to this overarching fear, Wall Street media gave Tesla investors additional factors to worry about over the weekend. First, Barron’s reported General Motors is stepping up competition in the electric cars market as it begins selling its GMC Hummer electric pickup and prepares to introduce a Cadillac Lyriq electric SUV. Separately, Reuters reports this morning that Volkswagen CEO Herbert Diess is vowing to replace Tesla as the world’s biggest seller of electric vehicles by 2025.    

Now what

Well and good, but I have to say that at this point the old saw “if wishes were fishes …” comes to mind. GM and Volkswagen may both wish they could overtake Tesla — and they might even succeed in time. But here in the U.S. for example, Tesla still commands a 70% market share in sales of electric vehicles. Suffice it to say that GM and Volkswagen have some catching up to do if they want to overtake the market leader.  

Meanwhile, Tesla has already overcome the biggest objection to the stock, first proving it can earn a profit in 2013, according to historical data from S&P Global Market Intelligence, and then putting together a string of 11 straight profitable quarters from 2019 through 2022 to prove it can maintain profitability. With a 15.5% operating profit margin today — twice GM’s profit margin and nearly twice Volkswagen’s — all indications are that, despite the competition, Tesla is still doing just fine.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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