Tesla has long been considered as the most innovative and powerful Electric Vehicle (EV) company in the world. In fact, some argued that it was the only company that could succeed in this market. Elon Musk has attracted a cult-like following and became the richest man on the planet. There are, however, many threats to Tesla’s business, despite the supporters not acknowledging them.
Most recently, the Chinese company BYD overtook Tesla to become the world's largest EV company. They sold a record number of cars, including 525,409 battery electric vehicles (BEVs) in the last quarter of 2023. Even though Tesla also sold a record number, it amounted to 484,507 cars. Tesla still sold more cars than BYD in 2023, but the Chinese company backed by Warren Buffet is rapidly narrowing the gap. Chinese EV makers benefit not only from the demand at home, but are also expanding internationally.
In terms of stock market valuation, Tesla had been worth more than the entire automotive industry combined. This further points to the hype that Elon Musk created and is hard to explain to fundamental investors. Tesla cut prices in China to attract customers and stem slowing growth which triggered a price war. It will become harder and harder for the company to fight for profits. The company reported a net profit of $1.9 billion from July to September 2023, a 44% drop from $3.3 billion a year earlier.
Furthermore, Elon Musk recently engaged in yet another venture - buying Twitter! Since he did it, the company lost 72% of its value. Some argue that his emotional intelligence is not ripe for such business. His strong engineering and visionary mind can be good for Tesla, SpaceX and Neurolink, but is likely doing damage to Twitter. Importantly, Elon Musk is arguably too distracted to manage all the companies and this will impact Tesla as well.
The quality and safety of Tesla cars have also been questioned. Many drivers reported problems with software, unwanted acceleration, problems with self-driving options, brake failures, problems with wheels etc. Being a new entrant to the car industry, Tesla does not have the experience of BMW, Mercedes or Audi to produce cars en masse and assure long term safety and quality. This problem can be accentuated further down the line.
To add to Tesla’s woes, Hertz has just announced that it is selling Tesla cars at bumper discounts as it wants to scale back on the EV giant’s fleet. Hertz announced its plan to take this action during its third-quarter earnings call due to higher collision and damage repair costs. Another bad news coming today is recalling more than 1.6 million Model S, X, 3 and Y exported to China due to problems with automatic assisted steering and door latch controls.
Despite its innovation prowess, Elon Musk and Tesla have not been delivering on promises. Self-driving is perhaps the most famous example, as Elon has been luring investors and Tesla owners by this feature for a very long time and it is still not there yet. In fact, the company is currently facing criminal and civil investigations into its self-driving claims. One can add a very tough workplace culture, questionable business practices and deceptive marketing, and Tesla can really be driving itself to the ground.
What are your thoughts? Can Tesla still thrive, or is it facing extinction? Comment below and let’s engage in a civilized discussion! :)