The Zhitong Finance App learned that Tesla (TSLA.US) has become one of the most valuable companies in the world because the company has proven that selling electric vehicles in large quantities can be profitable. But for most of 2024, investors questioned Tesla's outlook: the stock fell 35% during the year due to declining sales, confusing product strategy signals, and concerns that its aging product line could not keep up.
Tesla CEO Elon Musk seems to be more concerned about the future of autonomous robot taxis rather than developing a cheaper electric car to compete head-on with competitors. Although Tesla's driver assistance software is called “Full Self-Driving” (Full Self-Driving), it still requires active manual monitoring.
Musk announced during the April 23 earnings call that Tesla is becoming an artificial intelligence company, and autonomous driving is indeed Tesla's top priority. “If anyone doesn't believe Tesla will solve the problem of autonomous driving, I don't think they should be investors in this company,” Musk said. “We'll do it, and we've done it.”
Meanwhile, Tesla assured investors that it is speeding up plans to launch cheaper models. Musk said the new cars will be produced on Tesla's current production line and may be ready in early 2025.
Tesla still faces many challenges, including a high interest rate environment that makes many consumers wait and see, and increased competition.
Demand weakens
The first e-car buyers were mostly high-income tech enthusiasts, who used electric cars as their second vehicle. Industry experts say that now, these buyers are largely satisfied, so demand growth is slowing: after a 60% increase in 2022 and 47% in 2023, US EV sales are expected to grow only 11% this year, according to UBS forecasts.
Tesla's first-quarter deliveries actually fell 8.5% from the same period last year, falling short of expectations. “The global adoption rate of electric vehicles is under pressure, and many other car manufacturers are moving away from electric vehicles in favor of plug-in hybrids. We don't think this is the right strategy; electric cars will eventually dominate the market,” Musk said during the first quarter earnings call.
Tesla's deliveries fell year over year
For investors, growth has always been at the core of Tesla's value proposition: according to DataTrek's analysis, about 79% of the company's current valuation is based on its future profit potential.
One of the big questions investors are facing this year focuses on where future growth will come from. Tesla's latest model, the Cybertruck, was recalled on April 19 to fix the accelerator pedal problem. The model has yet to enter the market in large numbers.
Growth concerns have made Tesla one of the worst performers in the S&P 500 this year. However, even after the stock price fell, Tesla was still the most expensive stock among the tech “Big 7” in terms of price-earnings ratio.
Tesla followers say the company is worth the premium because the future of the automotive industry is electric cars, and Tesla is still the only profitable car manufacturer in the US that only produces electric cars. Tesla now insists that the future will also be autonomous cars.
Competition intensifies
Just as demand is waning, dozens of new electric vehicles are hitting the US market. S&P Global said that at least 51 electric vehicle models — including Tesla's Models, X, 3, and Y — have been marketed in the US, compared to 32 a year ago. Industry research firm Cox Automotive predicts that by the end of 2025, at least 70 models will enter the market.
As a result, consumers have plenty of options when buying electric cars, and some of them are fed up with Musk's controversial remarks on social platforms. Cox said that in the first quarter of this year, Tesla's share of the US electric vehicle market was about 51%, down from nearly 62% in the same period last year.
Outside of the US market, where Chinese automakers are dominant, competition is even more intense. About half of the electric cars sold globally are Chinese brands.
In order to cope with increasingly fierce competition, Musk has lowered the prices of Tesla models several times. This has slowed Tesla's loss of market share, but it has also had a significant impact on its profit margins.
The product line is still unclear
Tesla's next source of sales is expected to be a cheap model costing around $25,000. Musk first mentioned the car in September 2020, saying that Tesla's ongoing series of innovations will enable it to produce an electric car at this price in about three years. Just in January of this year, Musk also said that Tesla is “progressing very well” in developing low-cost cars.
Then, in early April this year, the media reported that Tesla had shelved plans for cheap cars and prioritized its self-driving taxis, which caused an uproar among investors. On the first quarter conference call, Musk declined to give any details when analysts asked about cheap cars.
Now, Tesla says it will accelerate the launch of cheap models. Tesla said that using its existing production line will enable it to advance this plan.
Autonomous driving has yet to be verified
The idea to create an autonomous taxi service has been in the works at Tesla for at least 8 years. Musk was very optimistic about Tesla's progress and proposed a vision that the company would operate millions of electric cars in a robot taxi fleet, a service that would mimic the services offered by ride-hailing companies such as Uber.
Tesla said in a letter to shareholders in the first quarter: “The future is not only electric cars, but also autonomous driving.” “We believe it is only possible to achieve large-scale autonomous driving by using data from millions of vehicles and huge artificial intelligence training clusters. We have both, and we're continuing to expand.”
However, the company has yet to provide a feature that can be used safely without the driver looking at the road surface and holding the steering wheel with both hands. Tesla has had to recall millions of cars and is facing multiple lawsuits for crashes involving its driver assistance systems.
Musk is riddled with scandals
Musk and Tesla have long been almost synonymous: he's the company's ambassador and CEO since 2008. His record of turning startups into money-making machines made Tesla popular among professional investors and large groups of retail investors. But Musk's unusually close relationship with the board of directors that should have overseen him attracted negative attention, from Musk's $56 billion salary plan that was rejected by the court to a scandal involving suspected drug use.
Some shareholders have complained that Musk's attention is being distracted by five other companies he runs, including SpaceX and NeuraLink. Shareholders said he chaotically acquired the social media company Twitter Inc. in 2022 and renamed it X, which caused Tesla to lose $672 billion in market value that year.