What happened

There’s been no shortage of news surrounding EV juggernaut Tesla (TSLA -9.22%) over the past month. Several of those news items help explain why the stock dropped 12.9% in May, according to data provided by S&P Global Market Intelligence.

So what

The decline didn’t end with the calendar month, either. In the first few trading days of June, Tesla shares have declined another 7%. Several things came together in recent weeks to knock Tesla shares down. The stock, in fact, is down 33% year to date for reasons that include its valuation, production challenges, and other causes centered around CEO Elon Musk.

Image source: Tesla.

Now what

Tesla, like many automakers globally, has been working through supply chain challenges for months as semiconductor chips and other needed parts are in scarce supply or caught up in transit delays. The company plowed through those difficulties in the first quarter, growing revenue 81% year over year and earning a profit of $3.3 billion. 

But the challenges were exacerbated last month when Chinese authorities imposed lockdowns in large cities including Beijing and Shanghai, the location of Tesla’s Chinese factory. Investors will know more details on those effects when the company reports its second-quarter results, but some investors likely didn’t want to wait for that.

The stock’s lofty valuation doesn’t leave much room for error, either. Tesla has said it expects production to grow about 50% per year for a multi-year period. And the stock is pricing much of that in already. Even with the share price declines, Tesla stock recently traded at a price-to-earnings ratio of about 87 based on the most recent four quarters of net income. 

Another drag on shares last month came from Musk himself. As Musk seeks to buy social media company Twitter, Tesla investors see two issues that could directly affect Tesla and its stock. First, it could be a distraction for the Tesla boss just as two new facilities in Texas and Germany are in the midst of ramping up. Add in the supply chain issues, and shareholders likely want the visionary CEO fully focused on Tesla right now. Also a concern is how Musk will end up funding his acquisition of Twitter should it materialize. If he has to sell some stock, investors won’t want to be caught in the downdraft. 

Competition from traditional automakers as well as EV start-ups is also beginning to ramp up. All told, Tesla’s valuation left it vulnerable to a decline. That decline continued in the early days of June, too, as Musk signaled he believes economic headwinds are coming. The company is now looking to pause hiring and cut salaried jobs by about 10% in preparation for more difficult days ahead. If the slowdown Musk expects does come, there could be more downside ahead for Tesla stock.