There are many near-term risks for Tesla’s (TSLA) stock. While Tesla Inc. was hovering around $180 lately, it can go lower based on negative sentiment that is piling up.

Tesla Stock Risk #1: EV Demand Slowdown

Let’s start with one of the biggest Tesla stock risks, which is the slowdown in EV sales worldwide. BloombergNEF reported 31% growth rate for EV cars, including plug-in hybrids and battery EVs (BEV). They expect the growth rate in 2024 to decelerate to 21%. The market still shows a healthy growth rate, but it is slowing down.

BEVs are still building their momentum and have not reached wide masses, especially in the US. This is where Tesla’s next challenge lies: to entice middle-income households to buy into EVs. For now, it remains a tough sell.

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Battery EV cars still cost more compared to gas cars. And even though BEV cars may promise lower maintenance, the jury on that is still out. Most people care about initial price and that is playing against BEVs. The prices for battery EVs are still somewhat higher and charging network/speed are subpar compared to gas-powered cars. Most people make car purchases based on their monthly car loan payments. As interest rates rose in the US, monthly car loan payments went up in tandem.

There is a lot of debate if the EV market will tank or soar again. The truth is likely somewhere in the middle. As technology and affordability catch up to what consumers expect of BEVs, the demand may slow down in the next several years. But, probably it will pick up again as EV adoption accelerates long-term.

Tesla Stock Risk #2: Chinese Competition

But, here is another problem for Tesla. China accounted for almost 60% of all EV sales worldwide in 2023.

Yes, Tesla has a production footprint in China, but the competition there is very stiff. Among Tesla’s competitors are the car giant BYD, Geely, GAC Aion and SAIC-GM-Wuling Automobile. And that is just to name a few. Someone may retort that Tesla’s cars have superior technology and such. But, I would not be so quick. Chinese EV car makers produce very competitive vehicles, especially those by BYD. BYD has both affordable and luxury EV car lineups.

Tesla Won’t Sell Inexpensive Car Until 2025

What’s worse is that Tesla does not sell inexpensive cars. Its cheapest car in China costs between $35K to $40K. Conversely, BYD offers the Seagull model for around $11K.

True, its range and other specs are not so great. But, having such inexpensive car in developing countries is a big advantage. And, Tesla will not have it until at least 2025-2026. The promised crossover car should cost $25K in its base configuration. So, any upgrades (more driving range, autopilot, etc.) will make it even more expensive.

For now, BYD is not selling cars in the US, but it has plans to open a factory in Mexico. Mexico could be the backdoor for BYD entry into the US market. Unless the US government takes action, it could be game over for many US car makers, in my opinion. Tesla will likely take a hit and be fine. But, still, this looming problem is there.

Waning State Subsidies and Price Wars in China

The other problem is with subsidies in China. China had a 10% tax exemption on EV car purchases before 2022. In 2023, they extended this program until 2027 with tax subsidies up to RMB30K ($4,170). But, these subsidies will get phased out starting in 2026 and 2027. So, as we see Chinese government is reducing support for EVs. And, after 2027, EV car makers will be left to fend for themselves.

Moreover, EV car makers in China are waging price wars. Tesla reduced prices from 6% to 11% at the end of 2023. Ironically, certain Tesla car models now cost less in China then in the US, sometimes by up to 20% or more. Chinese car makers followed Tesla’s suit and also reduced their prices. This does not bode well for Tesla’s margins.

Tesla’s Production is Slowing in China

To underscore how important China’s EV market is to Tesla, consider the recent news from a week ago. According to official stats, Tesla’s deliveries in China plunged in February 2023. They were down 19% year-over-year and down 16% compared to January. The stock promptly dropped by 7% on that day and even lower afterwards on other negative news. So this development is bad for Tesla’s margins and sales. To give you a perspective, Tesla generated 22.4% of its revenues in China in 2023.

Tesla Stock Risk #3: Unionization

The other issue that is less evident is unionization. Despite high levels of automation, Tesla still employs about 140K workers globally. Roughly, 50% of them, or 70K, are in the US. Of course, Tesla successfully kept unionization at bay at its factories. As you may know, many US auto makers experienced major disruptions due to UAW strikes in 2023. These strikes produced major concessions including a 25% wage bump and profit sharing arrangements.

But, most importantly, this produced ripple effects for non-union auto plants. Tesla had to increase wages for its US employees in certain factories by up to 10%. Likely, even more wage increases will be coming to avoid unionization. According to Reuters, Tesla enjoys around $660 labor cost advantage per vehicle. This is due to lower hourly wages compared to other major car makers in the US. This does not include non-wage compensation, such as stock options Tesla gives to its workers though.

But, even so, if we assume that this $660 advantage evaporates, this could decrease Tesla’s operating profits by roughly $330 million, or 498K cars times $660. This is in the US alone. In comparison, Tesla’s operating profit was $8.9 billion in 2023.

So, this may not seem like much. But, if unionization attempts succeed, Tesla may be up for a wild ride with UAW. And that could become Tesla stock risk to watch out for. Strikes and other demands can turn into avalanche that will make Tesla less flexible. If Tesla continues its automation, UAW may make even more aggressive demands. These could include job guarantees and protection against layoffs and plant closures.

Also, the risk of unionization in other places may go up. For instance, Tesla is tied in a bitter dispute with the Swedish mechanics union. Unions in Nordic countries, such as Denmark, joined this dispute too in sympathy. For instance, Danish dock workers stopped uploading and transporting Tesla cars there.

Nordic countries are different compared to the US and I think this what led to this conflict. Unlike the US, there are few national laws for minimum wages or other aspects of labor regulation. All this is taken care of via collective bargaining between labor unions and firms. So, there is a lot at stake here for Nordic labor unions and they are unlikely to let Tesla off the hook easily.

Tesla Stock Risk #4: Moonshots May Fail

The other Tesla stock risk is that its moonshots may flop or take longer to materialize. Any upside from $200 Tesla’s stock price hinges on the software margins around 20%-30% and sales growth rates of 20%+. If for any reason this will not happen or moonshots are delayed, the market repricing is inevitable.

For example, Tesla’s Dojo project will cost the company around $1B in investments in 2023-2024 alone. That’s a lot of money for a very uncertain payoff. It may succeed, but it may not. There was a departure in 2023 of Ganesh Venkataramanan. He was a lead person for the Dojo supercomputers. Likewise, Tesla lost Andrej Karpathy in 2022. According to Musk, Andrej almost single-handedly wrote code for many features of the full self-driving algorithm. These departures underscore problems and risks with these moonshots.

Tesla Stock Risk #5: Elon Musk

Finally, Elon Musk remains the final most important risk for Tesla.

Many people are huge fans of Tesla and Musk. They were the early buyers and patrons of Tesla products. But, I think Tesla may be hitting a wall with middle- and low-income customers. In other words, there are so many people who can afford expensive battery EVs at $50K-$100K prices. At some point, an affordable vehicle is a must to appeal to a broader audiences. And here, Tesla and Elon Musk, must tread carefully. Musk should not alienate future buyers with divisive language that he is notorious for.

And finally, we do not know to what extent the value of Tesla depends on Musk today. Meaning, what if he departs for one or another reason from the company? This is quite conceivable. After all, he does not have a controlling voting stake in the company. So, anything can happen.

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I also hope that he takes his health seriously. Elon Musk still has a lot of involvement in Tesla’s engineering and manufacturing efforts. So, to me, it is a concern when a substantial chunk of a stock’s value is tied to one thing. Be it a large customer, one supplier or one key person, such as Elon Musk.

So, if negative news keeps piling up in 2024, it is quite possible that Tesla’s stock can stumble. This is something to keep in mind if you are thinking of investing in Tesla today.