What Happened?

Shares of electric vehicle pioneer Tesla (NASDAQ:TSLA) fell 2.6% in the afternoon session after the major indices declined (Nasdaq down 2%, S&P 500 down 1.5%) as yields soared amid growing uncertainty about the future pace of rate cuts. Adding to the market's concern is the upcoming November 2024 presidential election, with investors still trying to figure out the potential policy direction under the next administration. 

Additionally, the earnings season is contributing to heightened volatility, with investors still processing weak quarterly updates from Starbucks and Boeing. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Tesla? Access our full analysis report here, it’s free.

What The Market Is Telling Us

Tesla’s shares are extremely volatile and have had 93 moves greater than 2.5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 12 days ago when the stock dropped 9% after the Robotaxi event fell below market expectations. CEO Elon Musk showed up at the event in the much-anticipated self-driving Cybercab, which has no steering wheels or pedals. The Cybercab also discards the old charging system using plugs for a newer inductive charging process, which works like refilling a car's gas tank without ever touching the nozzle. However, the Cybercab, which is expected to cost below $30,000 apiece, won't be available to consumers until 2027. In addition, Tesla is expected to start its Robotaxi business as early as 2025 in Texas and California, using the Model 3 and Model Y. The company also unveiled the Robovan, a 20-seater that can also be used to transport goods. 

Following the event, Wall Street analysts expressed a wide range of concerns. Barclays highlighted the lack of updates on near-term growth opportunities as the Robotaxi service won't be available until 2025. Morgan Stanley also highlighted the dearth of data on "rate-of-change on FSD/tech, ride-share economics, and go-to-market strategy." Given these concerns, the analysts expect shares to come under pressure in the coming quarters.

Tesla is down 14.2% since the beginning of the year, and at $213.14 per share, it is trading 19% below its 52-week high of $263.26 from July 2024. Investors who bought $1,000 worth of Tesla’s shares 5 years ago would now be looking at an investment worth $12,553.

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