3 Forces That Could Shake 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:
- Collapsing Market Share in Key Growth Regions
- The ‘4680 Battery’ Production Hell & Demand Mismatch
- Escalating Capital Expenditure on Speculative Ventures Amidst Core Business Slowdown
Risk 1: Collapsing Market Share in Key Growth Regions
- Details: Significant downward revisions to 2026 delivery forecasts, Valuation de-rating as growth narrative evaporates
- Segment Affected: Automotive Sales (Europe & China)
- Potential Timeline: Immediate to Q2 2026
- Evidence: European sales in steep decline, down 44% YoY across early reporting markets (Jan 2026); China domestic sales collapsed 45% YoY, lowest since November 2022 (Jan 2026), Market share in China fell to 8% from 10% (2025); and Volkswagen overtook Tesla as Europe’s top EV seller (2025)
Risk 2: The ‘4680 Battery’ Production Hell & Demand Mismatch
- Details: Material impact on Cybertruck and other future vehicle gross margins, Write-downs of capitalized costs related to 4680 manufacturing ramp
- Segment Affected: Automotive Manufacturing & Cost of Goods Sold
- Potential Timeline: Q1-Q3 2026
- Evidence: Key cathode supplier L&F Co. wrote down its $2.9 billion supply deal by over 99% to just $7,386 (Dec 2025), Cybertruck, the primary vehicle for 4680 cells, is a ‘commercial flop’ with sales far below capacity (2025); Reintroduction of 4680 cells to some Model Ys framed as ‘navigating supply chain challenges’ rather than a primary, cost-effective solution (Jan 2026); the company admits, ‘our biggest constraint globally continues to be on the battery pack front’ (Q4 2025 Call)
Risk 3: Escalating Capital Expenditure on Speculative Ventures Amidst Core Business Slowdown
- Details: Negative free cash flow in 2026: we forecast a $6bn cash burn and margin compression from prioritizing high-cost, low-revenue ‘AI’ projects over core auto business
- Segment Affected: Corporate (Free Cash Flow & Overall Profitability)
- Potential Timeline: Throughout 2026
- Evidence: Announced intention to more than double annual capex to over $20 billion (Q4 2025 Call); Operating expenses increased 39% to $3.6 billion, largely for AI data centers, as automotive revenue declined (2025); Shift in narrative to a ‘physical AI company’ as vehicle delivery growth turns negative for the second consecutive year (2025); Ending production of Model S and X to reallocate resources to robotics (2026)
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: -2.9% LTM and 5.6% last 3-year average.
- Cash Generation: Nearly 6.6% free cash flow margin and 5.1% operating margin LTM.
- Valuation: Tesla stock trades at a P/E multiple of 349.7
| TSLA | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Automobile Manufacturers | – |
| PE Ratio | 349.7 | 24.7 |
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| LTM* Revenue Growth | -2.9% | 6.5% |
| 3Y Average Annual Revenue Growth | 5.6% | 5.5% |
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| LTM* Operating Margin | 5.1% | 18.8% |
| 3Y Average Operating Margin | 7.4% | 18.3% |
| LTM* Free Cash Flow Margin | 6.6% | 14.0% |
*LTM: Last Twelve Months
If you want more details, read Buy or Sell TSLA Stock.
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