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Is the Tesla (NASDAQ:TSLA) stock rout due to CEO Elon Musk’s political activity? Or is it fears of further sales declines as the year progresses? Or possibly “radical left lunatics” boycotting the company as President Trump suggests?
It looks to me like a combination of two of those, as the stock closed at $231 on Tuesday (11 March). How many radical left lunatics can even afford a Tesla?
Tesla has collapsed by more than 50% since the all-time high it set in December on the back of Trump’s election victory. Still, even that leaves long-term investors with a 445% gain in the past five years.
Falling sales
The price has regained about 6.5% since Monday, after Trump promised to buy a new Tesla. But that won’t do much to offset a global sales slump.
Tesla sold about 7,500 vehicles in Europe in January. That’s only around half the number of sales in January last year. And it comes as tightening EU emissions rules are helping boost hybrid and electric vehicle (EV) sales overall.
Germany, the EU’s biggest market, saw total EV sales rise 30% in February compared to the same month a year ago. But Tesla sales there fell more than 70%. Sales are declining in China, Australia… all round the world.
The NIO share price, meanwhile, has climbed 29% in the past month with a 17% rise in a single day on 11 March. But it still lags well behind Tesla over five years, having peaked as long ago as 2021.
What should investors do?
I’m sure of very few things in today’s market. But I am convinced I see the uncertainty and fear that Benjamin Graham warned about in the short term.
Known as ‘the Father of Value Investing’, Graham said prices revert to fundamental performance in the long term. And that’s where long-term investors should surely look.
The problem for me is that forecasts put Tesla’s 2025 price-to-earnings (P/E) ratio up at 89. And it drops only as far as 71 by 2026. And that’s based on a consensus that won’t yet reflect the growing bearish outlook among analysts. There has to be a chance that Tesla could drop a good bit further yet.
Sometimes it rains gold
Another great investor, Warren Buffett, said: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.”
Our economic skies are as dark as I think I’ve seen them for a long time. And I reckon the US stock market slump could mean golden times for investors with a long enough horizon.
I do think it could be a big mistake to write off Tesla. But my thoughts are turning to other fallen growth stocks on more attractive P/E valuations. After Nvidia lost a full trillion dollars in market-cap, its forward P/E’s down to just 25 and predicted to drop further.
But I’m mostly considering a top up on Scottish Morgage Investment Trust with all its juicy Nasdaq stocks, down 16% from a February high. It could still fall further, mind.
