The Hidden Dangers Facing Tesla Stock
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.
Specifically, we see these risks:
- Intensifying Price War Leading to Severe Margin Compression
- Market Share Collapse in Key Growth Region (China)
- Cybertruck/4680 Battery Production Failure
Risk 1: Intensifying Price War Leading to Severe Margin Compression
- Details: Automotive gross margins at 4.5-year lows (Jan 2025), Potential for further EPS estimate cuts following Q4 miss
- Segment Affected: Automotive Sales, Global
- Potential Timeline: Immediate, Q1 2026
- Evidence: Revenue per vehicle declined approximately 10% year-over-year in Q4 2025 (Jan 2025), Automotive revenue fell 8% in Q4 despite a 2% increase in deliveries, indicating significant price cuts (Jan 2025)
Risk 2: Market Share Collapse in Key Growth Region (China)
- Details: Jeopardizes long-term growth narrative and valuation premium, Sustained volume declines in a critical market
- Segment Affected: China Automotive Sales
- Potential Timeline: Ongoing, likely to worsen in H1 2026
- Evidence: China NEV market share dropped to 4.9% in 2025 from 6.0% in 2024 (Jan 2026), Retail sales in China fell 4.8% year-over-year in 2025, while competitors like Geely Auto saw an 81.3% increase (Jan 2026)
Risk 3: Cybertruck/4680 Battery Production Failure
- Details: Inability to generate meaningful revenue from a key new product, Writedowns on capital expenditures for 4680 production lines
- Segment Affected: Automotive Manufacturing & Battery Technology
- Potential Timeline: Immediate to next 2 quarters
- Evidence: Key supplier L&F Co. wrote down its $2.9 billion cathode supply deal for 4680 batteries by over 99% to just $7,386 (Dec 2025), Cybertruck selling at an estimated annual run rate of 20,000-25,000 units, far below the 250,000 unit production capacity (Dec 2025)
What Is The Worst That Could Happen?
Looking at Tesla’s risk during tough times shows some clear dips. It fell about 54% in the 2018 correction, 61% during the Covid crash, and 74% in the inflation shock. Despite Tesla’s growth story, these drops highlight how volatile it can be when markets turn south.
But the 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 Financials Yet?
- 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 278.0
| TSLA | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Automobile Manufacturers | – |
| PE Ratio | 278.0 | 24.6 |
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| LTM* Revenue Growth | -1.6% | 6.4% |
| 3Y Average Annual Revenue Growth | 9.3% | 5.7% |
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| LTM* Operating Margin | 5.1% | 18.8% |
| 3Y Average Operating Margin | 8.3% | 18.4% |
| 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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