Tesla Stock: Tread Carefully, Build Your Position Slowly

Electric vehicle manufacturer Tesla (NASDAQ:TSLA) might be the least loved Magnificent Seven member. Oddly enough, Tesla is either a pioneer or a pariah, depending on whom you ask about it.

The best way to sum up Tesla’s current situation is: “It’s complicated.” Therefore, if you intend to buy Tesla stock, only purchase a few shares and have an exit plan ready if the trade goes against you.

There are several issues that complicate the Tesla bull case. These issues include Tesla’s layoffs, an executive exodus and CEO Elon Musk’s potential clash with U.S. regulators. All in all, the near-term outlook for Tesla is hazy and investors should choose caution over complacency.

Is Musk Really Committed to Affordable EVs?

Earlier this year, Tesla disappointed some EV enthusiasts when it reportedly shelved its plans to produce a highly affordable entry-level vehicle. This proposed EV, informally known as the Model 2, had previously been expected to start at around $25,000.

Is Musk obsession with robotaxis causing Tesla to abandon affordable EVs in favor of self-driving cars? That’s a valid concern, and a recent news item further calls Tesla’s commitment to affordable vehicles into question.

Specifically, Reuters reported that Tesla has “stopped taking orders for the least expensive version of its Cybertruck, which is priced at $61,000.”

Meanwhile, Tesla’s $100,000 version of the Cybertruck electric SUV is immediately available for order and prompt delivery.

Frankly, Tesla’s decisions to shelve its $25,000 EV plans and stop taking orders for the less expensive Cybertruck version are tone deaf. One of the biggest barriers to EV adoption is price, and robotaxi-obsessed Musk doesn’t seem to understand or care about this issue.

Investors might wonder whether the Cybertruck will live up to the hype as some customers wait for a less expensive version.

Guidehouse Insights analyst Sam Abuelsamid explained, “It shows that demand is a lot less than a million trucks” (referring to Musk’s previous claim that Tesla had fielded 1 million Cybertruck reservations).

Tesla Makes Headway in China

Tesla may be quite popular in the U.S., but the company has a China problem. One commentator described Tesla as a “catfish” in a “tank full of baby sharks.” In other words, Tesla is struggling to compete in China against domestic EV producers.

Tesla’s troubles in China won’t end anytime soon. However, for what it’s worth, Tesla sold 46,227 EVs in China in July. That’s up 47% year over year, so the improvement is notable.

However, one good month doesn’t make a pattern. Analysts forecast that Tesla will sell 950,000 cars globally in the second half this year. The company will need to maintain a rapid, consistent EV-sales pace – including in China – to achieve this.

This will be easier said than done, of course. China’s vehicle market is highly competitive, and many Chinese EV buyers are loyal to domestic brands.

It’s dangerous for investors to assume that Tesla’s July EV-sales growth will become a consistent pattern. Thus, it’s wise to stay small in your Tesla share position and continue to monitor the data.

Don’t Go Overboard With Tesla Stock

Don’t get the wrong impression. I’m certainly not telling anyone to panic-sell their Tesla shares. After all, Tesla’s July EV sales growth in China is undeniable.

However, investors shouldn’t jump to any hasty conclusions about Tesla’s China and global EV sales for the rest of 2024. Moreover, one might wonder whether Tesla and Musk are truly committed to making EVs affordable.

Therefore, any portfolio positions in Tesla stock should be very small. Also, it’s essential to have an exit plan in place, just in case the financial market decides to punish Tesla in the coming months.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.