Does Tesla’s Golden age come to an end?
Paul English, a tech entrepreneur and co-founder of travel website Kayak, has been a long-time Tesla fan and owner, but he is now reconsidering his loyalty to the brand due to Elon Musk's recent behaviour, including his treatment of staff and acquisition of Twitter. English believes that Musk's actions have damaged Tesla's brand and caused the company's stock price to plummet 73% in the past year. He believes that educated, liberal people, who are typically drawn to Tesla, do not like bullies and are therefore turned off by Musk's behaviour.
Tesla's outlook has changed significantly in recent times. Previously, the company was experiencing strong growth, with a peak value of nearly $1.3tn and projected after-tax profits of almost $13bn in 2022. However, this growth has slowed, with new vehicle deliveries increasing by only 40% last year, compared to 87% the previous year. This slower growth, combined with the need to ramp up production at new plants in Texas and Germany, has left Tesla facing a "perfect storm," as it struggles to find enough customers to justify its increased production while also dealing with intensifying competition and the possibility of a downturn in the global automotive industry.
Wall Street is trying to understand if Tesla's recent challenges mark the end of the company's period of strong growth and Musk's reputation as a respected innovator, or if the economic downturn will actually benefit Tesla and bring it closer to its goal of dominating the electric vehicle industry. Although there is no clear evidence that Musk's actions on Twitter have directly impacted Tesla's vehicle sales, there has been a decline in the company's brand loyalty and a decrease in the number of people with a favorable view of Tesla. This drop is particularly notable among Democrats, who are more likely to be electric vehicle customers, as their favorable view of Tesla fell by 20 percentage points.
Musk's actions have damaged Tesla's brand at a time when the company is already facing challenges due to higher inflation and rising interest rates, which have made it more difficult and costly for potential customers to finance a new vehicle. Additionally, Tesla has recently increased prices due to rising material costs and strong demand, leading to a 25% increase in the average monthly car payment in the US to nearly $700. This has led to concerns about a decline in demand for electric vehicles, as well as increased competition for Tesla. There are already signs of these challenges, as waiting lists for Tesla's most popular cars have disappeared and the company delivered fewer vehicles in the last quarter of 2021 than expected. Furthermore, competition in the electric car market has become more intense as other global carmakers release more widely appealing electric vehicles.
everal major carmakers, including Volkswagen, Hyundai-Kia, Ford, and General Motors, have invested heavily in electric vehicles and have released new models in recent years. As a result, Tesla's share of electric vehicle sales in the US has declined, falling from 79% in 2020 to 65% in the first nine months of last year, according to S&P Global Mobility. The company is expected to have a market share of less than 20% by 2025, as competition in the electric vehicle market intensifies. Carlos Tavares, CEO of Stellantis, believes that affordability will be key to the success of electric vehicles, as without it, the middle class will not be able to afford them and the industry will not have the volume needed to protect the planet.
In order to meet its ambitious sales goals and remain competitive, Tesla will need to bring down its costs and prices to reach a mass market level. The company's CEO, Elon Musk, has acknowledged that Tesla needs to develop a lower-priced vehicle in order to appeal to a wider audience, but it is unclear when this might become a reality. The current high price of Tesla's vehicles, coupled with a premium valuation of the company's shares compared to other carmakers, could lead to a significant downward re-evaluation of the company's value by investors. This is because Tesla may not have the technological advantages to justify being valued as a high-growth tech company, according to Bob Lutz, a veteran auto executive.
Bob Lutz, a veteran auto executive, believes that Tesla's technological advantage has been overestimated and that the company will eventually be seen as just one among many carmakers, with a more modest stock market valuation to match. However, others argue that Tesla has built up durable advantages in areas such as battery design, manufacturing techniques, and gross profit margin, which give it a cost advantage and cushion to cut prices in order to maintain growth. If this is correct, it could allow Tesla to emerge from a downturn in a stronger position relative to its competitors and set the stage for future growth. However, concerns about slower growth and the potential need to cut into profits to support sales have caused unease on Wall Street. Despite this, some Tesla investors remain loyal and are planning to increase their positions in the company.
