Tesla (NASDAQ:TSLA) CEO Elon Musk briefly ceased to be the world’s richest man on Dec. 7 as TSLA stock continued to fall. According to Forbes, the temporary new champion of wealth is , whose family controls LVMH (OTCMKTS:LVMUY), the luxury goods conglomerate.
The value of Tesla is now down 24% just since Musk bought Twitter. Investors are asking whether this a coincidence or the start of a harder fall. Tesla currently trades around $170 per share with a market capitalization of $538 billion.
The Tesla Slowdown
Tesla’s problems start in China, where the company has decided to delay hiring and shorten shifts , which is its most productive site. The country has also reportedly cut prices in China.
One analyst says Tesla is also offering $3,750 in incentives to U.S. consumers who buy the car . Tesla “ to have a demand issue,” the analyst concluded.
If Tesla is becoming “just another car company,” the stock’s troubles may be just beginning. That’s because other car stocks like General Motors (NYSE:GM) and
Toyota Motor (NYSE:TM) sell at a discount to their sales. Tesla, even at its present low, sells for 9 times its sales.
The reason is clear in the firms’ most recent quarterly financials. Tesla saw 15% of revenue become net income, and revenues grew 56% year over year Toyota had 7.7% of revenue become net income with sales growth . GM’s net income was 7.9% of revenue, with .
If Tesla’s sales growth and margins are falling into line with those of other car makers, so should its valuation. After-market revenue, including software updates, and the fact the cars seem to sell themselves are why Tesla is valued more like Microsoft (NASDAQ:MSFT), which also sells for 9 times sales.
What Happens Next for TSLA Stock?
Tesla isn’t due to report earnings again until Jan. 25. The last time it reported in October, it pointed to a huge inventory of finished cars at the Shanghai docks, seen as a harbinger of future growth. If they’re seen as an albatross, as they would be for GM, there’s a .
On the date of publication, Dana Blankenhorn held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
