To quote an old song, we see a bad moon rising. Electric vehicle demand is slowing, but Tesla (NASDAQ:TSLA) still has a high valuation and that’s a recipe for trouble. Tesla CEO Elon Musk is evidently firing an important team at the company. Given these circumstances, the best grade we can assign to Tesla stock right now is a “D.”
When an automaker fires people, it can be a sign that there are problems under the hood. In April, Tesla disclosed its intention to cut more than 10% of its workforce.
Tesla’s 386,810 first-quarter 2024 EV deliveries, while not a terrible number, wasn’t impressive either. Overall, the risk-to-reward profile would make it difficult to recommend investing in Tesla stock with confidence.
Tesla Layoffs Are a ‘Kick in the Pants’
Heads are rolling at Tesla, apparently. According to an email from Musk, the company needs to be “absolutely hard core about head count and cost reduction.” Also, according to Reuters, Musk “has dismissed two Tesla senior executives and plans to lay off hundreds more employees.”
In a move that undoubtedly shocked some onlookers, Musk reportedly disclosed his plans to fire the entire team of around 500 employees at Tesla’s Supercharger charging-network segment.
This is significant, as the Supercharger network was widely expected to set the standard for EV charging in the U.S.
While this move may startle some Tesla shareholders, it could also cause serious consternation among suppliers to the Supercharger network, such as Bullet EV Charging Solutions.
Andres Pinter, co-CEO of Bullet EV Charging Solutions, stated, “As contractors for the Supercharger network, my team woke up to a sharp kick in the pants this morning.”
Is Tesla Stock an Overvalued Meme Stock?
Not long ago, a Fortune article called Tesla stock a “meme stock,” and this definitely wasn’t intended as a compliment. Also, a Bloomberg article warned about Tesla’s “towering valuation.”
Both articles cited Musk’s attempt to morph Tesla into a different company — one that’s focused less on EVs and more on artificial intelligence and self-driving technology. There’s no assurance that Tesla will succeed as a robotaxi-and-AI-tech company, but the market may have already assumed that Tesla will flourish in these areas.
UC Berkeley economics professor J. Bradford DeLong is clearly skeptical about this. “The fundraiser, cheerleader, and coach for teams developing real technologies has become a meme-stock carnival barker,” DeLong contended.
Of course, DeLong is referring to Musk — and to the market’s belief that Musk is a charismatic genius who can achieve anything he sets his mind to. But again, the market may have already priced in Musk’s and Tesla’s future success.
Since Tesla trades at 63 times the company’s forward earnings, it will be challenging for Tesla to justify its share price in the coming quarters.
Tesla Stock: Layoffs Look Like a Red Flag
Layoffs can sometimes be a sign of a company’s financial discipline. In Tesla’s case, however, laying off the entire Supercharger team looks like a red flag. Perhaps the Supercharger network isn’t the EV-industry game changer that some folks thought it would be.
Along with that, investors should consider whether Tesla’s valuation really makes sense. There’s no guarantee that Tesla will succeed as an robotaxi-and-AI-technology company.
Thus, it’s not easy for us to strongly recommend an investment in Tesla now. Today, we’re only assigning Tesla stock a “D” grade, but we’ll certainly keep tabs on the company for future updates.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
