‘No one can stop Tesla’

Last Wednesday, Elon Musk stood before the employees at the Tesla factory in suburban Berlin and declared, “No one can stop us.” This statement came after the factory had been sabotaged, with power lines cut, causing a halt in production. But is Musk’s claim of being unstoppable really true? According to the NYTimes, there are doubts.

Tesla’s car sales are no longer skyrocketing at an incredible pace. The market is now flooded with electric cars from Chinese manufacturers and traditional brands like BMW and Volkswagen. Meanwhile, Tesla has been slow in releasing new models.

Elon Musk’s other risky ventures, combined with his penchant for making polarizing political statements and attacking those who disagree with him, raise questions about how well he is managing Tesla.

Wall Street is increasingly concerned about the company: Tesla’s stock has lost one-third of its value this year, despite major stock market indices reaching record highs. In fact, Tesla’s market capitalization vaporized by $94 billion in just the first two weeks of 2024.

Eric Talley, a professor at Columbia Law School specializing in corporate law, management, and finance, said, “When you bet on Tesla, you’re really betting on Elon Musk.”

In an interview with former TV host Don Lemon on Monday, Musk even denied that the company’s stock price drop was part of a cycle. He said, “Stocks go up and down, but what really matters is that we create and deliver great products.”

The extended production halt at the Grünheide factory, the second time this year, is just a temporary setback. However, the decrease in Tesla’s stock price indicates that investors are reassessing the company’s long-term prospects and no longer certain that it will dominate the industry, despite its higher value compared to other car manufacturers.

It must be acknowledged that Musk has played a significant role in pushing other car manufacturers to focus on electric vehicles, demonstrating their practicality, profitability, and appeal. The Model Y, Tesla’s crossover SUV, was the best-selling electric car in the world last year.

But Tesla has not introduced any new models for the mass market since the release of the Model Y in 2020. Meanwhile, Chinese car manufacturers like BYD, SAIC, and Geely Auto are launching dozens of new electric models.

Analysts suggest that Tesla’s Cybertruck, a limited-production electric pickup truck released last year, may attract a relatively narrow group of buyers due to its high price and unique design. Additionally, Tesla’s planned $25,000 electric car is not expected to be produced in large quantities until 2026.

Michael Lenox, a business management professor at the University of Virginia specializing in industries undergoing technological disruptions, said, “I’m a bit surprised at this point.”

Tesla has frequently adjusted prices to meet demand, reducing prices to boost sales and then sometimes raising them again. While the price cuts have made electric cars more affordable, analysts believe this strategy has eroded the company’s profitability without significantly increasing revenue. Lower prices have also sharply reduced the resale value of Tesla cars since buyers are unwilling to pay more for a used car than a new one.

This strategy has left potential buyers in a “waiting for a better deal” mindset, according to Gary Black, a managing partner at Future Fund. He has over 400,000 followers on his social media platform, X, which has always been optimistic about Tesla. However, the fund recently sold some of its Tesla holdings.

Tesla faces stiff competition in China, the world’s largest car market, where over one-third of new car sales are electric vehicles. BYD surpassed Tesla in global electric car sales in the last three months of 2023 with a range of affordable sedans, crossovers, and small cars. BYD’s Seagull model is sold for under $12,000 in China.

Even after Tesla’s price cuts, the Model 3 sedans and Model Y SUVs produced at the Shanghai factory are still much more expensive than many Chinese models. European and Chinese car manufacturers are also introducing new electric models at a rapid pace. HSBC predicts that over 150 models will be available by the end of this year.

John Helfton, an assistant professor of engineering management at George Washington University who researches Chinese car-buying habits, said, “Tesla doesn’t have a great position to compete in the luxury car market because their vehicles don’t offer as many amenities as those produced by brands like BMW or Mercedes-Benz.”

Helfton added, “In China, there are too many excellent options to the point that Tesla falls into the mid-range product segment. It’s a car that is too expensive for the luxury it can provide to customers.”

It’s worth noting that Tesla has yet to reveal how they will regain their foothold in China, where the company earns a significant portion of its revenue. “What can they do besides cutting prices to sustain operations until 2024?” asked Tu Le, CEO of Sino Auto Insights, a research firm. “Moreover, price reduction incentives have lost their effectiveness.”

Helfton believes that Musk’s long-standing attitude of disregarding norms and his appetite for major technical challenges have hindered Tesla’s ability to quickly release new products. The Cybertruck is an example of this. The stainless-steel pickup truck, with better rust resistance than traditional steel, is difficult to manufacture. The truck arrived more than two years behind schedule, diverting resources that could have been used for more widely appealing products.

Helfton said, “Tesla could do much better than it is now if it were more aggressive in trying new things.”

But doing the unconventional is what excites Musk. In the same interview on Monday, Musk eagerly shared details about the improved version of Tesla’s Roadster sports car, which the company plans to release later this year. He said this vehicle would combine Tesla’s technology with SpaceX’s, creating something that is “not really a car.”

In Europe, the Model Y was the best-selling electric car last year. However, according to Schmidt Automotive Research, Volkswagen and its brands Audi, Skoda, and SEAT collectively sold more electric vehicles than Tesla on the continent. Model Y sales declined towards the end of the year after Germany and other countries reduced subsidies.

Tesla may also face restrictions being considered by the European Union on imported goods from China. All Model 3 sedans sold in Europe and right-hand-drive Model Ys for the UK are imported from Shanghai. According to Schmidt, Tesla accounts for one in four cars manufactured in China and imported into Europe.

Matthias Schmidt, the founder of the research firm, said, “This will narrow Tesla’s impressive profit margins but create a more level playing field for European manufacturers producing locally.” He noted that France has gone a step further in protectionist policies by limiting government subsidies for European-made electric vehicles. Italy has shown signs that it may do the same.

Musk himself is a source of uncertainty. In January, a judge in Delaware rejected his $50 billion compensation package, stating that Tesla’s board had used a flawed procedure in negotiating his bonus. In response, Musk threatened to move Tesla’s registration from Delaware to Texas.

Tesla’s board has still not disclosed a new compensation package for Musk, and he has threatened to pursue unspecified business ventures outside of Tesla unless he is granted control of 25% of the company. He currently owns about 13%.

Musk’s unexpected visit to Grünheide was timely and helped reassure the worried employees in Germany that he remains committed to the company and the factory. The factory aims to produce about 300,000 cars per year but has set a goal of expanding that figure to one million vehicles.

When asked by reporters if he intends to stick to that plan, Musk replied, “Absolutely.”

BizToday