1 Unfavorable Trend That Explains 47% Drop in Tesla Shares

Giving credit where credit is due, adze (TSLA -8.45%) integrated electric vehicles (EV). Although they existed before Elon Musk became head of Tesla, the company made them cool. Consumers also liked the idea of ​​an environmentally friendly car. As a result, Tesla stock has risen well since the company’s initial public offering in 2010.

Tesla shares, on the other hand, are down 47% from their late-2021 peak, seemingly stuck in neutral.

What gives? Simply put, the reality of battery-powered vehicles is setting in. These cars are not quite as practical as first hoped. Tesla shares were not rated for this negative development.

Declining interest in electric vehicles

Data comes from the American Automobile Association; you know it better as AAA, or just “Triple-A”. In a recent survey, AAA found that 63% of US drivers are unlikely to buy an all-electric vehicle in the near future, down from 53% in 2023. Conversely, the proportion of drivers likely to buy an electric vehicle has declined from 23% last year to just 18% for 2024. In both cases, the change is an extension of trends that started a year earlier.

Data source: AAA. Chart by author.

The reason why interest in electric vehicles is waning is not surprising – consumers are worried about the lack of range and/or the subsequent inability to quickly recharge the batteries of these vehicles. Their above-average cost is also a factor.

Tesla’s stock premium is under pressure

Don’t read too much into the message. The electric vehicle business is not condemned. Unit sales in the U.S. electric vehicle market grew 52 percent last year, and the International Energy Administration believes U.S. electric vehicle sales will grow another 20 percent this year. The electric vehicle market will be bigger in the future than it is now. And Tesla is still a top name in the EV field.

However, Tesla stock has historically been valued for the company’s absolute market dominance and brand pricing power. Both are fading now as the disadvantages of these automobiles become clear, while real competition creeps in. Investors are still trying to figure out the new normal for this ticker.