Tesla, the electric vehicle (EV) giant, is facing a rough start to 2024. After an impressive 2023 where its shares more than doubled, the company has hit a rough patch, losing over US$94 billion in market value within the first two weeks of the year.
Several factors are contributing to Tesla’s struggles. There’s been a change of heart from car rental giant Hertz Global Holdings on EVs, more price cuts on cars produced in China, and signs of increased labor costs. All of this is happening against the backdrop of slowing demand for EVs, especially in the United States.
According to Cowen analyst Jeffrey Osborne, investors are worried about Tesla’s growth slowing down. The price cuts in China are only making matters worse, leading to concerns about a “race to the bottom” due to intense competition in the EV market.
This rough start is the biggest market capitalization drop for Tesla since it went public in 2010. In terms of percentages, Tesla’s stock has seen its worst performance since 2016, dropping 12 per cent since the start of January.
Tesla has been dealing with a double whammy of aggressively cutting car prices to boost demand, which has eaten into its once-strong profit margin. The automotive gross margin, excluding regulatory credits, fell from 27.9 per cent to 16.3 per cent in the third quarter of last year. The pressure is building as workers at Tesla’s U.S. plants are getting pay raises.
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Adding to the challenges, shipments bound for Tesla’s Berlin plant had to be redirected due to security concerns in the Red Sea. Production at its plant near the German capital will be halted from January 29 to February 11.
Despite Tesla’s warning about a slowdown in EV demand during its October earnings report, the company now lags behind China’s BYD Co in global electric car sales. This shift has surprised investors, considering Tesla was the eighth-best performer in the S&P 500 last year, now ranking as the eighth-worst in 2024.
The impact extends to Elon Musk personally, with the world’s richest person seeing his net worth shrink by US$23 billion in the early weeks of the year. While Musk overtook Bernard Arnault last year, he now faces competition from Jeff Bezos for the top spot on Bloomberg’s wealth index.
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Despite these challenges, Tesla remains a crucial player in the shift from traditional to electric vehicles globally. Even though BYD has overtaken Tesla in unit sales, Tesla still outshines in revenue and profits. Its strong position in the U.S. market keeps it at the forefront of the EV sector.
Tesla’s main challenge seems to be living up to its past success and high expectations. With shares priced for perfection, the company is vulnerable to significant reactions to negative news. Supporters argue against comparing Tesla to traditional car manufacturers, emphasizing its potential in developing truly self-driving vehicles. However, skepticism persists as Tesla is yet to deliver on promises of fully autonomous driving and AI capabilities.
As Tesla faces a challenging start to 2024, the EV industry is keenly observing how the company tackles these obstacles and whether it can regain its former glory in the rapidly evolving electric vehicle landscape
