Are Tesla's days in the Magnificent Seven over?

Electric vehicle maker's shares have dropped roughly 34 per cent this year

A Tesla supercharger in Santa Clarita, California. Reuters

No companies that comprise the so-called Magnificent Seven have had as dismal a start to the year as Tesla, leading analysts to question the electric vehicle maker's place in the group.

Last year, these seven tech companies – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – posted huge gains. But this year has been a different story, most notably for Tesla, as it has been left far behind.

After Friday's trading, Tesla ended the week down 6.7 per cent. This year to date, Tesla shares have fallen by nearly 34 per cent.

Tesla's market cap has dropped by roughly 58 per cent since peaking at $1.23 trillion in 2021, when it closed at $409.97 a share in November that year.

As of Friday, it had a market cap of $519.9 billion, making it the 13th most valuable US company and the 15th most valuable company globally.

Art Hogan, chief market strategist at B Riley Wealth, said he does not consider Tesla to be part of the Magnificent Seven.

“No, I don't think so,” he said when asked by The National.

“That's been happening since arguably October of last year, and I think that [the] Mag Seven … counted for a great deal of the gains in the S&P 500 over the course of 2023. That has not been the case in 2024,” Mr Hogan said.

Its hard start to the year was punctuated on Wednesday when Wells Fargo analyst Colin Langan predicted zero growth in sales volume in 2024. He also made a more grim prediction in forecasting that volumes will drop in 2025.

Tesla is a “growth company with no growth”, he wrote.

But Tesla's problems date to last year, where it faced a range of issues including safety recalls, federal investigations and slowing growth.

Investors have also questioned the leadership of Tesla co-founder and chief executive Elon Musk over his other ventures such as X and Neuralink.

In an April 2023 letter to Mr Musk, a group of shareholders noted that as he focused on those other products, “Tesla is increasingly losing market share in the high-performance EV market”.

In its fourth-quarter earnings report published in January, Tesla said growth would be much slower this year as the company moves towards producing its next vehicle and is “between two major growth waves”.

More concerning for the Texas-based company, though, is the emergence of Chinese competition. Chinese car maker BYD surpassed Tesla for the first time in the three final months of last year, selling 526,000 vehicles compared to Tesla's 485,000.

“That's likely what is really been the new headwind for Tesla over the course of the last six months or so,” Mr Hogan said.

The Fab Four, or meet The Replacements?

If Tesla is out of the tech-heavy Magnificent Seven, the question turns to which company would replace it, or if the group should shrink.

Amazon, Meta, Microsoft and Nvidia have made the biggest contributions to S&P 500 returns this year.

“There's a real growing movement … to something like the Fab Four, where you'd actually knock out three of the underperformers … but the first exit would certainly be Tesla,” Mr Hogan said.

But if the Magnificent Seven were to stick for some time, it could perhaps expand its membership to companies that are not tech-based.

Drug maker Eli Lilly is making the most noise. The company, best known for its drug to treat diabetes, has seen its market rise to $718 billion. Ozempic maker Novo Nordisk is seen as its closest competitor in the pharmaceutical sector.

Warren Buffett's Berkshire Hathaway, credit card companies Visa and MasterCard, or a Taiwanese semiconductor could all be contenders to take Tesla's place, according to Mr Hogan.

“If you look at the Magnificent Seven was put together in this sort of 2023 time frame … these companies seem to be unstoppable and they've kind of left out some pretty obvious candidates that have done equally well and continue to do well this year,” he said.