Tesla (TSLA) has stumbled before. Its stock has plunged more than 30% within a span of less than 2 months on as many as 8 different occasions in recent years, wiping out billions in market value, and erasing massive gains in a single correction. If history is any guide, TSLA stock isn’t immune to sudden, sharp declines.
Specifically, we see these risks:
- Cratering China Demand & Market Share Collapse
- Escalating Legal & Regulatory Assault on FSD/Autopilot
- Margin Erosion from Intensifying Price War and Negative Mix Shift
Risk 1: Cratering China Demand & Market Share Collapse
- Details: Further sharp declines in China sales volumes through 2026, Material guidance cut for FY2026 deliveries and revenue
- Segment Affected: Automotive Sales – China
- Potential Timeline: Immediate, Q1-Q2 2026
- Evidence: January 2026 domestic sales collapsed 45% year-over-year to 18,485 units (Feb 2026 CPCA Data); Xiaomi’s YU7 SUV outsold Model Y by more than 2-to-1 in January 2026 (Feb 2026 CPCA Data), Full-year 2025 China sales fell for the first time, down 4.8% YoY (Jan 2026); and China NEV market share dropped from 10% to 8% in 2025 (Feb 2026)
Risk 2: Escalating Legal & Regulatory Assault on FSD/Autopilot
- Details: Billion-dollar litigation reserves and settlement costs, Potential for a forced recall or disabling of FSD/Autopilot features
- Segment Affected: Automotive – Software/FSD Revenue & Brand Value
- Potential Timeline: Next 3-6 months
- Evidence: Facing NHTSA investigation into 2.9 million vehicles for FSD traffic law violations, response deadline of Feb 23, 2026 (Jan 2026), Lost first major Autopilot trial, ordered to pay over $200M in damages (Aug 2025), Settled at least four other Autopilot-related lawsuits to avoid trial (Sept-Nov 2025); California DMV settlement forced removal of “Autopilot” and “FSD” marketing terms (Feb 2026)
Risk 3: Margin Erosion from Intensifying Price War and Negative Mix Shift
- Details: Automotive gross margins to fall below 15%, FY2026 EPS estimates to be revised downwards by 20%+
- Segment Affected: Automotive Sales – Global
- Potential Timeline: Q1-Q2 2026 Earnings Reports
- Evidence: Full-year 2025 net income plummeted 46% to $3.8 billion (Jan 2026 10-K); Q4 2025 automotive revenue declined 11% YoY (Jan 2026 Q4 Report); Forced to introduce 5-year zero-interest financing in China to stimulate demand (Jan 2026); Competitors like Xiaomi and BYD are rapidly gaining share with lower-priced models (Feb 2026)
What Is The Worst That Could Happen?
Looking at Tesla’s risk during tough times shows some clear dips. It fell about 54% in the 2018 correction, 61% during the Covid crash, and 74% in the inflation shock. Despite Tesla’s growth story, these drops highlight how volatile it can be when markets turn south.
But the stocks fall even when markets are good—think events like earnings, business updates, and outlook changes. Read TSLA Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
Is Risk Showing Up in Financials Yet?
- Revenue Growth: -2.9% LTM and 5.6% last 3-year average.
- Cash Generation: Nearly 6.6% free cash flow margin and 5.1% operating margin LTM.
- Valuation: Tesla stock trades at a P/E multiple of 350.6
| TSLA | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Automobile Manufacturers | – |
| PE Ratio | 350.6 | 24.9 |
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| LTM* Revenue Growth | -2.9% | 6.5% |
| 3Y Average Annual Revenue Growth | 5.6% | 5.5% |
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| LTM* Operating Margin | 5.1% | 18.8% |
| 3Y Average Operating Margin | 7.4% | 18.3% |
| LTM* Free Cash Flow Margin | 6.6% | 14.0% |
*LTM: Last Twelve Months
If you want more details, read Buy or Sell TSLA Stock.
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