Shares of Tesla (TSLA +3.01%) were falling again this week, according to data from S&P Global Market Intelligence. The electric vehicle (EV) leader announced a major recall for its new Cybertruck vehicle, has reduced the costs of autonomous vehicle software, and is still reeling from a poor delivery number for the first quarter. At one point one of the largest companies in the world by market cap, the "Magnificent Seven" stock has fallen quickly from highs this year even with the broad market soaring.
The stock is down slightly over 10% this week and 40% year to date.
Cybertruck recall, major self-driving discounts
Tesla released the unique-looking Cybertruck back in December 2023. With mixed reviews, it has been unclear over the first few months in production how this product would help (or hurt) Tesla's business prospects. So far, it looks to be hurting the EV maker. This week, the company announced a major recall over a faulty accelerator pedal, which could be incredibly dangerous for any customer. But perhaps the worst part about this news was how few vehicles are getting recalled.
The National Highway Safety Administration said it is recalling fewer than 4,000 vehicles, which means Tesla has only sold that many to customers since launching the Cybertruck. While it takes time to ramp up production for automobiles, this is a tiny fraction of Tesla's EV deliveries for a much-hyped vehicle that has been in the works for years.
On top of these Cybertruck woes, Tesla is discounting the price of its Full Self-Driving driver assist program to $99 a month. It was previously $199 a month or $15,000 for a one-time purchase. This is troubling news given how much of the bull case is driven by Tesla's software sales. Even if 10 million people start paying for this software subscription (a high bar given the company hasn't even sold that many vehicles yet), that will bring in just over $10 billion in sales for Tesla. Yes, these are high-margin sales, but even in the most optimistic scenario Tesla's autonomous driving revenue will be insignificant for this $100 billion revenue business.
NASDAQ: TSLA
Key Data Points
Where does the stock go from here?
So the Cybertruck is not moving the needle. Software sales are looking bleak with major discounts. Deliveries fell for the first time year over year in the first quarter of 2024. Where does Tesla go from here?
I still think this stock looks overvalued, even after falling 40% this year. It has a price-to-earnings (P/E) ratio of 35, which is above the S&P 500 average. And this is with earnings falling and now new models on the horizon. The forward earnings ratio could be much higher, which does not bode well for the stock. Stay far away from Tesla or any EV stocks for the time being.
