Out with electric vehicles, in with weight loss drugs: Investors have ditched one-time favourite Tesla for pharmaceutical giant Eli Lilly, as the early days of long-established Eli Lilly’s diabetes and weight loss drugs deliver explosive profits.
Tesla’s new Cybertruck at a Shanghai showroom.
Future Publishing via Getty Images
Key Takeaways
- Tesla’s market value is down roughly $210 billion (27%) over the first five weeks of 2024 from $790 billion to about $580 billion, while Eli Lilly’s market capitalization is up about $140 billion (23%) year-to-date, from $553 billion to $690 billion.
- The gap widened between the two firms in early Tuesday trading, as Eli Lilly shares opened up about 5% on the back of strong earnings including $2.4 billion of fourth-quarter sales for its injectable weight loss drugs, and Tesla shares opened down 2% after Daiwa analysts downgraded their rating due in part to the corporate governance issues posed by Tesla’s capricious CEO Elon Musk.
- Eli Lilly, which first went public in 1952, put itself on a rare financial trajectory for such an old company, with analysts projecting explosive profit growth of 96% and 40% in 2024 and 2025 as sales for its Mounjaro and Zepbound GLP-1 drugs are projected to grow about 70% to some $8.5 billion this year and to $12.5 billion in 2024, according to FactSet data.
- Tesla, the far younger company with 14 years on the public market, is forecasted to report a 1% decline in profit this year after tallying a 23% decline from 2022 to 2023, a hard-to-swallow result of the company’s diminishing margins as it sextupled its vehicle deliveries over the last five years.
Key Background
Tesla is the S&P’s worst-performing stock of 2024, while Eli Lilly is the fifth-best, leading some market observers to question whether Eli Lilly usurped Tesla as a member of the “magnificent seven” leading U.S. stocks. Eli Lilly is the eighth most valuable public American company by market cap, while Tesla is the 10th-largest firm, also getting lapped by semiconductor chip maker Broadcom.
Danish pharmaceutical giant Novo Nordisk, Eli Lilly’s primary competitor in the weight loss drug space and maker of Ozempic, has enjoyed a similar bump on the stock market, with its valuation jumping from $305 billion to $525 billion since the beginning of last year, becoming Europe’s most valuable company in the process. Eli Lilly’s Mounjaro and Zepbound contain the same active ingredient, but Mounjaro is only prescribed on-label for Type 2 diabetes and Zepbound is approved for weight loss.
Tesla’s brutal start to the year came after its fourth-quarter earnings report last month fell short of analyst estimates for the top and bottom lines and as questions mounted about its board’s ability to govern Musk. Tesla’s gross profit margin shrank from 24% to 18% from Q4 2022 to Q4 2023, a result tied to the company’s litany of vehicle price cuts to keep up with its lofty output goals.
Contra
Despite the recent challenges, Tesla remains a home run for investors who bought stock before or early in Tesla shares’ roughly 1,000% runup in 2020. A $1,000 investment in Tesla five years ago would be worth about $6,500 now and the same investment 10 years ago would be worth roughly $12,000.
Crucial Quote
“This is a pivotal period for Musk to get Tesla through that will help shape (or haunt) its EV future,” Wedbush analyst Dan Ives wrote to clients last month.
This article was first published on forbes.com and all figures are in USD.
