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Tesla’s Growth Mirage: A Sobering Reality Check for Investors

Investors have been swept away by the whirlwind of the electric-vehicle (EV) revolution over the past five years. The allure of colossal profits in the flourishing EV market has been tantalizing. A report from Fortune Business Insights forecasts global EV sales to surge by nearly 18% annually from 2022 to 2030, reaching a monumental $1.6 trillion by the end of the decade.

While numerous companies compete for a slice of the expanding EV market, it is Tesla (NASDAQ: TSLA) that has basked in the limelight, leveraging its first-mover advantage to reap outsized returns.

An up-close view of a Tesla supercharger with Tesla electric vehicles parked in the background.

Image source: Tesla.

Tesla’s Meteoric Rise: Illusion or Reality?

By the close of trading on February 22, Tesla boasted a market capitalization of nearly $629 billion, surpassing the combined value of numerous traditional auto behemoths worldwide. The company achieved this feat by achieving what no other automaker had done in over fifty years: building a car company from scratch to mass production. Tesla’s production of nearly 1.85 million EVs last year outpaced its initial guidance of 1.8 million EVs.

Unlike other EV makers, Tesla stands out as the sole pure-play EV company generating a consistent profit under generally accepted accounting principles (GAAP). While legacy automakers like General Motors and Ford Motor Company rake in substantial profits from their internal combustion engine vehicles, their EV divisions bleed red ink.

Tesla’s meteoric 12,000% surge since its 2010 IPO symbolizes the company’s ambition to transcend being just an EV manufacturer. CEO Elon Musk spearheaded the installation of nearly 55,000 supercharger connectors, hyped the potential of Level 5 autonomous driving software and the Optimus humanoid robot, among other innovations.

However, a stark reality looms that the once lauded Tesla growth saga has hit a dead end.

The Stagnation of Tesla’s Growth Trajectory

Setting aside specific catalysts and headwinds, let’s focus on a company’s fundamental measure of success: its earnings per share (EPS).

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Between 2019 and 2022, Tesla’s automotive revenue tripled to $71.5 billion, while its adjusted (non-GAAP) EPS surged from $0.01 to $4.07. Wall Street’s darling surpassed expectations amid historically low interest rates and pandemic-induced fiscal stimulus.

However, Wall Street’s EPS outlook for 2022-2025 paints a divergent narrative. After hitting $4.07 in EPS in 2022, Tesla witnessed a 23% plunge in per-share profit to $3.12 in 2023. Estimates projected above $6 for 2023 were slashed by half within a year.

The trend echoes in Tesla’s 2024 and 2025 forecasted EPS of $3.05 and $4.06, respectively. Initial estimates of over $7 per share in 2024 dwindled, and the expected $4.06 in 2025 halved over the past year. Wall Street anticipates one of the past decade’s premier growth stocks to hit a standstill mid-decade.

Notably, the EV sector faces its first true hurdle as rising interest rates inflate borrowing costs for financing EVs. Furthermore, the lack of widespread EV infrastructure serves as a significant industry impediment.

Yet, as the world’s most valuable EV company, Tesla’s glaring weaknesses come to the fore.

A concerned individual observing a volatile stock chart on a tablet.

Image source: Getty Images.

Facing the Music: Tesla’s Fading Glow

Tesla’s woes came to the forefront when the company aggressively slashed prices of its production models (3, S, X, and Y) last year. Shareholders hoped these cuts stemmed from enhanced production efficiency, yet Musk clarified during the annual shareholder meeting that pricing hinges on demand. With Tesla persisting in price reductions in 2024, it underscores dwindling EV demand and escalating inventory levels.

Moreover, Tesla’s ambition to broaden its horizons beyond automotive realms is stumbling. Revenue growth in the Energy Generation and Storage segment plummeted, while the Services segment’s gross margin languished below 3% in Q4. Despite sporadic successes,