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The "Magnificent Seven" are likely to continue their upward performance in 2024, but analysts expect Tesla to lag behind.

he Magnificent Seven group of stocks was the primary leader of the 2023 market rally. This trend is expected to persist in 2024, except for one group constituent, Tesla (Nasdaq: TSLA). Analysts believe may be the group’s only laggard in the coming 12 months. Six of these companies have positive expected returns for this year, while just Tesla is projected to drop 3%.
 

Tesla Gained 130% in 2023, But 2024 Outlook Hints at Challenges

Despite facing a few bumps, electric vehicle (EV) leader Tesla staged an impressive rebound in 2023.

With a year-to-date surge of roughly 130%, Tesla was among the Magnificent Seven giants most responsible for propelling the S&P 500 to its near-all-time high last year. However, most of the index’s gains came from chip giant Nvidia (Nasdaq: NVDA) and Meta Platforms (Nasdaq: META), which soared over 245% and 183% in 2023, respectively.

Yet, the latter part of the year hinted that Tesla is not without its challenges. The carmaker’s latest earnings report showed a significant drop in its profit margins, likely due to the company’s series of price cuts throughout the year. 

Moreover, these headwinds will likely persist in 2024, primarily due to the challenges Tesla’s core EV business and the broader auto industry will likely face. 

“Tesla’s valuation has been supported by growth expectations, even as margins have eroded. We expect delivery and revenue estimates for 2024 and 2025 will come down materially.”

– Bernstein analyst Toni Sacconaghi wrote in a note last month.

According to FactSet, Tesla’s earnings are anticipated to grow from a 25% drop in 2023 to $3.06 per share. However, compared with 2022, Wall Street expects 2024 earnings per share (EPS) to fall 6% to $3.83, even though revenue is projected to increase by 45% to $118.5 billion. 

In the meantime, Tesla is also grappling with the intensifying competition in the EV market, particularly in China. On Monday, local EV heavyweight BYD (BYDDY) (BYDDF) unofficially became the largest seller of all-battery electric vehicles globally. Notably, the company delivered 526,000 all-electric cars in the fourth quarter, compared to 480,000 units Tesla is expected to report for the same period. 
 

Broader Market Likely to Continue Rallying in 2024  

Although Wall Street is not extremely bullish on Tesla’s prospects in 2024, a notable wave of optimism permeates the broader market outlook.

Sitting just 0.6% of a new record high, the S&P 500 is well-positioned to expand its momentum in 2024, particularly after the Federal Reserve confirmed last month that it plans to ease the tightening of monetary policy. The US central bank is poised to cut interest rates at least three times this year, marking a significant shift in market dynamics compared to just months ago. 

With that in mind, analysts on Wall Street have recently issued notably positive predictions for the S&P 500 in 2024, with some seeing the index exceeding 5,000 by year-end. At the same time, some are not feeling as bullish, citing recessionary risks and fading consumer strength. 

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