Shares of electric vehicle pioneer Tesla (NASDAQ:TSLA) fell 7.1% in the afternoon session as stocks slumped (Nasdaq down 2%, S&P 500 down 1.5%) after the Fed signaled less growth later in the year Rate cuts (than expected) would be at the FOMC meeting in December 2024.

This announcement followed the committee’s decision to cut interest rates by 0.25% to a range of 4.25% to 4.5%, broadly in line with consensus forecasts. Looking ahead to 2025, the Fed is expected to make two quarter-point rate cuts each, suggesting that future policy adjustments will be implemented more slowly, with the committee reaffirming a data-driven approach that takes into account future inflation data and updates on the labor market.

As a reminder, the driver of a stock’s value is the sum of its future cash flows, discounted to today. The result of lower interest rates, all other things being equal, is higher stock valuations. This is particularly true for higher-growth stocks, such as those in the technology sector, where current value is more dependent on cash flows many years in the future.

The stock market overreacts to news and sharp declines can provide good opportunities to buy high-quality stocks. Is now the time to buy Tesla? You can access our full analysis report for free here.

Tesla shares are extremely volatile, recording 106 moves of more than 2.5% over the last year. In this context, today’s move suggests that the market considers this news meaningful, but not something that would fundamentally change its perception of the company.

The biggest move we’ve written about in the last year came about two months ago, when the stock rose 19.1% after news that the company reported third-quarter results that beat analysts’ gross margin expectations (19.8% vs. 16.9%). That helped the company beat adjusted earnings per share, adjusted EBITDA and free cash flow. Additionally, Tesla reported 6.4% quarter-over-quarter growth in vehicle deliveries, the first time the company reported quarterly delivery growth in 2024.

Looking ahead, forecasts were encouraging, with Tesla expected to sell more vehicles in 2024 compared to last year. This suggests that deliveries in the fourth quarter of 2024 are expected to be well above Wall Street estimates. Additionally, management forecasts vehicles will grow 20-30% in 2025. Investors also reacted positively to news of Tesla’s cheaper electric vehicle, which is on track to begin production next year. Sales of $25.18 billion fell short of expectations of $25.4 billion. However, this was clearly overcompensated by the positive results.

The story continues