Tesla stock: a slow-motion car crash?
Tesla is down 40% from its December peak, bringing its valuation below $1 trillion and raising serious questions about its future.
It’s like watching a car crash in slow motion. Tesla’s stock has plummeted 40% from its December peak, bringing its valuation below $1 trillion and raising serious questions about what the future holds.
The numbers are alarming:
- Europe: Sales are in free fall, down 45% year-on-year, even as the broader battery electric vehicle (BEV) market grew 37%. It turns out that Nazi salutes (intended or otherwise) aren’t great for business in Germany—who would have thought?
- China: Tesla’s January sales fell 15% year-on-year amid ferocious competition from domestic rivals.
- United States: Sales declined 13% year-on-year, despite 15% growth in the overall BEV market, as Musk’s political antics alienated traditional buyers.
- Margins: Once an industry benchmark, Tesla’s gross margins have collapsed from 27% in 2022 to 16% in Q4 2024.
The problem: selling fewer cars and making less money
To put it simply: Tesla is selling fewer cars and making less profit on each one.
Unsold inventory in various locations including Tesla’s Texas Gigafactory has accumulated at such a rate it is now visible from space. The political interjections of Musk are not the whole story. Tesla is between growth waves with a stale model lineup. Customers have also shown a strong preference for hybrids, as they offer the benefits of electric vehicles—such as tax savings—without the drawbacks of range anxiety or steep depreciation. Plato’s analysis estimates that only 5% of Tesla’s market cap can be justified by its car business.
Tesla stock bulls argue this is fine, given the "imminent" rollout of Full Self-Driving (FSD)—the supposed holy grail that justifies Tesla’s stratospheric P/E ratio of 132. They also hope Musk’s closeness to Trump will fast-track regulatory approval, allowing mass adoption of FSDat $99 per month. But there’s a problem: FSD approval happens state by state. One can’t imagine Democratic strongholds like California rolling out the red carpet.
The FSD Illusion: Premium Today, Standard Tomorrow
Even if FSD succeeds, we believe the market is grossly overestimating its value. History shows that once-premium auto features quickly become standard. Anti-lock braking (ABS), airbags, and rear-view cameras were all once expensive add-ons but are now expected inclusions.
Need proof? China’s EV leader BYD is already offering its driver-assistance system, “God’s Eye,” at no extra cost.Tesla deserves credit for pioneering FSD, but not at a valuation this extreme. Tesla also has nine of Plato’s proprietary Red Flags including the fact there have been no insider share purchases for the last two months and multiple insider sells, including from Elon. BYD in contrast has zero of Plato’s Red Flags.
Why we prefer BYD over Tesla
Given all this, you might expect us to be short Tesla—but we aren’t. Tesla’s volatility and disconnect from fundamentals make shorting a risky proposition.
Instead, the Plato Global Alpha Fund team prefers BYD Company (HKG: 1211), which has been capitalizing on Tesla’s missteps.
We’ve owned BYD's Hong Kong-listed shares since November 2023, and they are up 51% year-to-date. The stock trades at a far more reasonable P/E ratio of 31, and Warren Buffett still owns about 7%—never a bad sign when you’re betting alongside the Oracle of Omaha.
In this race, we’re backing BYD.
Discover the Plato Global Alpha Complex ETF (ASX: PGA1)
The Plato Global Alpha Complex ETF is available on the ASX under the ticker PGA1, providing a simple and convenient way for investors to access a long short global equities strategy, managed by an experienced investment team.
Click here to learn more about the fund and view performance.
ETF
Plato Global Alpha Complex ETF (PGA1)
Global Shares
View
Managed Fund
Plato Global Alpha Fund
Global Shares
View
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
David has more than two decades’ experience investing in global equities. Prior to joining Plato Investment Management he worked for JP Morgan Asset Management in London for fifteen years becoming one of the youngest managing directors in the firm’s history. He managed the JP Morgan Europe Equity Plus active-extension fund which was closed to new investors after growing to €6 billion, generating 4% p.a. net alpha over ten years. He also launched and managed the JP Morgan Europe Equity Absolute Alpha Market Neutral fund. In its first twelve months of operation, the fund returned over 20%, and grew assets to €1 bn. In 2014 he was the European Hedge Fund Manager of the Year (UCITS).
........
This communication is prepared by Plato Investment Management Limited (‘Plato’) (ABN 77 120 730 136, AFSL 504616) as the investment manager of the Plato Global Net Zero Hedge Fund (ARSN 654 914 048) (‘the Fund’). Pinnacle Fund Services Limited (‘PFSL’) (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.
Link to the Product Disclosure Statement: https://plato.com.au/wp-content/uploads/Plato-Global-Net-Zero-Hedge-Fund-PDS.pdf
Link to the Target Market Determination: https://plato.com.au/wp-content/uploads/Plato-Global-Net-Zero-Hedge-Fund-TMD.pdf
For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com
This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.
Whilst Plato, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Plato, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.
Any opinions and forecasts reflect the judgment and assumptions of Plato and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.
1 topic
2 stocks mentioned
2 funds mentioned
David has more than two decades’ experience investing in global equities. Prior to joining Plato Investment Management he worked for JP Morgan Asset Management in London for fifteen years becoming one of the youngest managing directors in the...
Expertise
David has more than two decades’ experience investing in global equities. Prior to joining Plato Investment Management he worked for JP Morgan Asset Management in London for fifteen years becoming one of the youngest managing directors in the...
Expertise
Comments
Comments
Sign In or Join Free to comment