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Tesla’s problems raise questions about its invincibility

Elon Musk appeared in a defiant mood Wednesday when he stood in front of employees of You’re herenear Berlin, a week after an arsonist set fire to a high-voltage electricity pylon and halted production.

“They can’t stop us,” Musk, the company’s CEO, told workers in a giant tent next to the factory.

But there are plenty of signs that Tesla may no longer be as unstoppable as it once seemed. The company’s car sales are no longer experiencing breakneck growth. Chinese automakers and established brands such as BMW and Volkswagen are flooding the market with electric cars. And Tesla was slow to respond with new models.

Musk’s many outside activities and his penchant for making polarizing political statements and attacking people he disagrees with have raised questions about his focus on running Tesla. Wall Street is increasingly concerned about the company: Tesla’s stock price has lost a third of its value this year, even as major stock indexes have hit record highs.

“A bet on Tesla has always been a bet on Mr. Musk,” said Eric Talley, a professor at Columbia Law School who focuses on corporate law, governance and finance.

In an interview with former TV presenter Don Lemon broadcast online Monday, Musk “Stocks go up and down, but what really matters is that we make and deliver great products,” Musk said. The week-long production shutdown at Tesla’s Grünheide factory, its second this year, was only a temporary setback. But the falling stock price indicates that investors are reassessing Tesla’s long-term prospects and are no longer certain that the company – which is still worth more than any other automaker – will ever dominate the industry.

Musk can take much of the credit for getting other automakers to focus on electric cars, proving that they could be practical, profitable and fun. Tesla’s Model Y SUV was the world’s best-selling car last year.

But Tesla hasn’t added a mainstream vehicle to its lineup since the Model Y went on sale in 2020. Chinese automakers such as BYD, SAIC and Geely Auto are launching dozens of new models. Analysts said Tesla’s Cybertruck, a futuristic pickup truck that went on sale in limited numbers last year, would likely appeal to a relatively small group of buyers given its high price and unconventional design. And even though Tesla is working on an electric car that would cost around $25,000, it’s not expected to be released in large numbers until 2026.

“I’m a little surprised at this point that there hasn’t been a follow-up,” said Michael Lenox, a professor of business administration at the University of Virginia who studies industries undergoing technological disruption.

Tesla has repeatedly adjusted its prices in response to demand, reducing them to boost sales and then sometimes increasing them again. Although the discounts have helped make electric cars more affordable, analysts say the strategy has eroded the company’s profits without doing much to increase revenue. The discounts have also significantly reduced the resale value of Tesla cars, because no one pays more for a used car than a new car.

The strategy trains potential buyers “to wait for a deal,” Future Fund managing partner Gary Black said on X, formerly Twitter. Black, who has more than 400,000 followers on X, which Musk owns, has long been a Tesla optimist, but the fund recently sold some of its shares in the company.

Tesla faces particularly intense competition in China, the world’s largest auto market, where more than a third of new car sales are electric. BYD overtook Tesla in global electric vehicle sales in the final three months of 2023 with a wide range of inexpensive sedans, SUVs and subcompacts. Its Seagull model sells for less than $12,000 in China.

Even after Tesla’s price cuts, Model 3 sedans and Model Y SUVs made at a Shanghai factory are far more expensive than many Chinese models. European and Chinese car manufacturers are also introducing new electric vehicles at a dizzying pace. More than 150 copies will go on sale by the end of the year, according to HSBC.

At the same time, Tesla is not well positioned to compete in the luxury market because its cars don’t offer as many amenities as cars made by BMW or Mercedes-Benz, said John Helveston, an assistant professor of management at engineering at university. George Washington University who studied Chinese car buying habits.

“In China, there are so many great options that Tesla is right in the middle,” Helveston said. “It’s too expensive a car for the luxury you get from it.”

Tesla has not explained to investors how it will regain ground in China, which generates most of its sales. The company did not respond to a request for comment.

“What are they going to take out of their toolbox, other than price cuts to keep them in the mix in 2024? asked Tu Le, general manager of Sino Auto Insights, a research company. “The price reduction tool has lost its effectiveness. »

Musk’s disregard for the established way of doing things, along with his love of big technical challenges, made it difficult for Tesla to launch new products quickly, Helveston said. The Cybertruck is an example. It’s made from stainless steel, which resists rust better than conventional steel but is notoriously difficult to work with. The truck arrived two years late and used resources that could have been used for more attractive products.

“Tesla could have done a lot better than it is today if it had been less aggressive in trying to do everything new and using half the knowledge that works,” Helveston said.

But doing new things excites Musk, who laughed with joy as he told Lemon about the revamped version of the company’s Roadster sports car, which he says Tesla plans to release at the end of the year. The vehicle will combine technology from Tesla and its rocket company, SpaceX, “to create something that’s not really a car,” he said.

In Europe, the Model Y was the best-selling electric car last year. But Volkswagen and its Audi, Skoda and SEAT brands have together sold more electric vehicles than Tesla on the continent, according to Schmidt Automotive Research. Sales of the Model Y fell at the end of the year after Germany and other countries cut subsidies.

Tesla could also suffer from restrictions that the European Union plans to impose on Chinese imports. All Model 3 sedans sold in Europe and the right-hand drive Model Y for Britain are imported from Shanghai. Tesla accounts for one in four Chinese cars imported by Europe, according to Schmidt.

“This would reduce what have been impressive, but nonetheless narrowed, profit margins and create a more level playing field for European automakers that manufacture locally,” said Matthias Schmidt, founder of the research firm. He noted that France had taken its protectionist policy even further by limiting government subsidies for the purchase of electric vehicles to those produced in the European Union. Italy has indicated that it could do the same.

Musk is also a source of uncertainty. In January, a Delaware judge vacated his compensation, worth more than $50 billion, saying Tesla’s board used a flawed process in negotiating his compensation. In response, Musk threatened to move Tesla’s company registration from Delaware to Texas.

Tesla’s board of directors has not revealed new compensation for him. Musk, who oversees SpaceX and several other companies besides Tesla and He currently owns about 13%.

“You now have a grumpy CEO,” said Talley of Columbia Law School. “What does this suggest about Tesla’s ability to attract Musk’s attention? Is it possible that he will withdraw from the company?

Musk’s whirlwind visit to Grünheide appeared timed to show employees in Germany, some of whom had expressed concerns about their safety after the arson, that he remained committed to the company and the factory. The factory produces around 300,000 cars a year, but aims to expand that to 1 million.

Asked by reporters if he intended to stick with the plan, Musk replied: “Yes, absolutely.”

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