Does Tesla Deserve a Spot as a ‘Magnificent 7’ Stock?

Stocks to sell

Tesla (NASDAQ:TSLA) stock has a roughly $560 billion valuation, down more than 50% from its peak with more downside possible. TSLA reduced production to align with demand in key markets because of declining demand in China.

Several high-profile analysts have forecasted a disastrous Q1 for Tesla in the deliveries department, something many have seen coming for some time. Let’s dive into whether Tesla truly deserves a spot among the “Magnificent 7.”

Startling Production Decision

Last week, Tesla shocked the market with a steep decline tied. The company’s price reductions in China have not boosted vehicle demand, resulting in production slowdown in Shanghai.

This, among other negative catalysts, has led to TSLA stock becoming the worst-performing company in the entire S&P 500 year-to-date.

Tesla faces multiple challenges, including market-share driven strategy and quality concerns for its Cybertruck.

Profit margins are decreasing and the company’s bottom line could suffer in the coming quarters as accounting tools used to boost earnings per share will be less available.

Tesla’s profit margins, a key metric for Wall Street analysts, decreased to 17.6% in December from 23.8% a year earlier. Disappointing sales in China, hitting a low last month, have intensified pressure on Tesla’s ambitious delivery goals.

Musk Defends Ketamine Use

We all know how Elon Musk highly affects the movement of TSLA stock through his words and actions, and lately, these movements haven’t been good.

Elon Musk defended his use of ketamine, claiming it helps alleviate negative thoughts, benefiting Tesla investors. In a recent interview with Don Lemon, Musk he discussed this, sparking interest.

During the interview, Musk covered various topics, including race and X’s advertiser loss.

Musk stressed execution’s importance, citing Tesla’s high valuation compared to the automotive industry. He attributed his controlled ketamine use to his demanding work schedule.

Despite stock decline, Musk remains focused on productivity. Car buyers and investors seem disillusioned with the Tesla CEO. Lemon’s contract with X was canceled after the interview.

As far as single-man risks are concerned, some have suggested that Musk remaining in the CEO may be more of a risk than him leaving. That’s something I’ve pondered myself lately.

More Headwinds

Formidable Chinese competition, flagging sales in most markets, and diminishing margins paint a rather negative picture for the world’s largest EV company by market capitalization.

There are now a myriad of other options in this space for EV buyers to consider, at similarly attractive prices. Thus, I think the outlook for TSLA stock is murky at best.

I’m of the view that Tesla doesn’t likely deserve a spot in the Magnificent 7. It’s a car company first (despite what Tesla bulls will tell you), and there are more risks than there are catalysts with the company right now.

On the date of publication, Chris MacDonald 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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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