The growth story at Tesla (TSLA 15.31%) is starting to look shaky. After years of ever-rising deliveries of its popular electric vehicles (EVs), the company has crashed head-first into economic reality. Demand for EVs is softening, so much so that traditional automakers are pulling back on their ambitious plans. In China, cheaper alternatives are eating Tesla's lunch.

Tough times for Tesla

Telsa's quarterly deliveries declined in the first quarter of 2024, the first time since the pandemic started. The company delivered 386,810 vehicles, down 20% from the fourth quarter of 2023 and 9% from the first quarter of 2023. Meanwhile, Tesla produced nearly 50,000 more vehicles than it delivered.

Tesla has also recently taken some steps to boost revenue. The company now requires employees to demonstrate, upon delivery, the company's Full Self-Driving (Supervised) system, which does not make the car fully autonomous. This system is a pricey add-on not included by default with Tesla's vehicles.

Tesla also recently slashed the monthly subscription price for Full Self-Driving (FSD) from $199 to $99, which is likely a sign that uptake is lower than the company would like. This price cut could help Tesla boost recurring revenue if it can greatly increase the number of subscribers.

The company is also cutting costs. Tesla reportedly plans to lay off more than 10% of its global workforce, translating to at least 14,000 employees.

Given Tesla's difficulties, it's not surprising that the stock has crashed about 60% since its pandemic-era peak.

The crash may not be over

How much further could Tesla stock fall? No one can answer that question definitively, but what we can do is look at Tesla's valuation relative to other carmakers.

Even after the stock rout, Tesla is valued at about $525 billion. Meanwhile, General Motors is valued at $50 billion, Ford at $49 billion, and Toyota at $332 billion. Tesla is still worth more than all three combined. Tesla delivered 1.81 million vehicles in 2023, while Toyota sold over 10 million.

A common argument used to justify Tesla's sky-high valuation is that the company does other things besides manufacture vehicles. That's certainly true, but that argument doesn't look as strong as it once did.

Software was supposed to be a major growth driver for Tesla, but given the massive price cut for FSD, it would appear that demand isn't particularly strong. Tesla sells solar panels, but demand is tanking industrywide due to high interest rates, lower demand, and changes in net metering in California. One analyst expects residential solar sales to tumble by 13% this year. Tesla's battery storage business may also suffer, given that solar power and battery storage often go hand in hand.

Tesla had around $29 billion in cash and short-term investments at the end of 2023. That cash cushion gives Tesla plenty of breathing room but not enough to avoid major layoffs. If there's any type of company that can burn through cash at a ferocious rate during a downturn, it's an auto manufacturer.

The story that has propelled Tesla stock to incredible heights doesn't look nearly as compelling today as it did a few years ago. With Tesla's valuation still at nosebleed levels, the stock looks incredibly risky.