3 Reasons Tesla Stock Could Tumble
Tesla (TSLA) has stumbled before. Its stock has plunged more than 30% within a span of less than 2 months on as many as 8 different occasions in recent years, wiping out billions in market value, and erasing massive gains in a single correction. If history is any guide, TSLA stock isn’t immune to sudden, sharp declines.
Despite Tesla’s stock riding an upward wave over the past year, recent record deliveries mask underlying vulnerabilities as fierce competition and softening EV demand continue to erode profitability, evident in declining operating income even amid revenue growth. This momentum, heavily reliant on a future of costly AI and robotaxi innovations, could quickly falter if real-world execution or regulatory hurdles fall short, leaving the premium valuation exposed to a challenging automotive landscape.
What Could Send The Stock Crashing?
- Competition Impact: Intense global EV competition, with China sales down 35.8% in Oct 2025 (3.2% market share), challenges growth despite Model Y sales and new EV plans.
- FSD Legal & Safety: Persistent regulatory investigations (NHTSA) and lawsuits regarding FSD safety claims and capabilities could hinder autonomous technology rollout and adoption.
- Supply Chain Costs: US mandate to remove China-made components from vehicle production within 1-2 years may increase manufacturing costs, though it aims for long-term stability.
What’s The Worst That Could Happen?
Looking at Tesla’s past market dips helps put its risk in perspective. The 2018 correction wiped about 53.5% off its peak, while the Covid pandemic saw an even steeper drop of 60.6%. The inflation shock hit the hardest with a 73.6% fall from top to bottom. Even with strong fundamentals and hype around the name, Tesla hasn’t been immune to big sell-offs during tough market times. It’s a reminder that no stock, no matter how popular, is fully shielded from major downturns.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read TSLA Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
Is Risk Showing Up In The Company’s Financials Yet?
Let’s take a look at fundamentals
- Revenue Growth: -1.6% LTM and 9.3% last 3-year average.
- Cash Generation: Nearly 7.1% free cash flow margin and 5.1% operating margin LTM.
- Valuation: Tesla stock trades at a P/E multiple of 251.1
| TSLA | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Automobile Manufacturers | – |
| PE Ratio | 251.1 | 22.6 |
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| LTM* Revenue Growth | -1.6% | 6.1% |
| 3Y Average Annual Revenue Growth | 9.3% | 5.4% |
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| LTM* Operating Margin | 5.1% | 18.8% |
| 3Y Average Operating Margin | 8.3% | 18.2% |
| LTM* Free Cash Flow Margin | 7.1% | 13.5% |
*LTM: Last Twelve Months
If you want more details, read Buy or Sell TSLA Stock.
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