Is This The End Of Tesla?
The other day, I overheard someone at a charging station saying, “Tesla is in a spot of bother at the moment.” This may be the biggest understatement of the century. Tesla has had woeful sales figures recently, not helped by the fact they had to recall all its Cybertrucks over a potentially fatal throttle issue. They have also had to cut 10% of their workforce to reduce costs, drastically cut the price of the FSD self-driving software to try and meet revenue targets and slash the prices of their EVs worldwide in a desperate attempt to meet sales targets in an incredibly competitive EV market. Not only that, but their share price has dropped a whopping 40% so far this year! Tesla also leaked that they are cancelling their much anticipated cheaper Model 2 EV and is instead focusing on robotaxis, despite their self-driving system being nowhere near competent enough to deliver such a product, a move which made many investment banks downgrade their predictions of Tesla massively, some even suggesting people to sell their shares. All of this combined led to Tesla’s 2024 Q1 earnings being 55% lower than their 2023 Q1 earnings, making it their worst quarterly earnings since 2012! At a glance, it seems like Tesla is in terminal decline. But are they?
Let’s start with that terrible Q1 earnings. Why are they so bad?
Well, once upon a time, Tesla was the most profitable EV maker in the world! Back in 2022, its profit margin peaked at over 30%. By the end of 2023, it had fallen to 17.6%. In the first quarter of 2024, it dropped even further to a dismal 16.4%. That is still far from the lowest in the automotive industry, but it is dire for a company as valuable as Tesla.
This all started when Tesla sparked an EV price war a few years ago when it slashed the price of its cars to compete with new rivals like the ID4 / ID3, Ioniq 5 & 6 and Polestar 2. Since then, it has continued to cut prices to meet sales targets, even going as far as to cut the cost of FSD in half, eroding at its overall profit margin. However, that hasn’t resolved the issue, as Tesla’s global sales are currently 9% lower than they were a year ago. As sales haven’t increased to make up for the price cuts, this has led to a vast decrease in revenue!
So why aren’t people buying Teslas?
Back in 2022, there wasn’t anyone who could challenge Tesla. If you wanted an EV with a usable range and charge speed for a sensible price, Tesla was your only option. But now there are a slew of options with better ranges, much faster charge rates, significantly better build quality and design, better brand recognition, and even better performance from other manufacturers, Western and Eastern, for less than a Tesla. So, why would you buy a Tesla?
It wasn’t supposed to be like this. The 4680 battery Tesla announced in 2020 was meant to be significantly cheaper and faster charging than anything else on the market, giving Tesla a massive price advantage. But that simply hasn’t materialised. Tesla’s self-driving was also meant to be fully functioning by now, which would have justified the higher price and pulled in more customers, but as it stands, it is less capable than systems from Audi and Mercedes, and miles away from full self-driving. This stagnation has allowed other manufacturers to catch up and overtake Tesla.
Customers have also noticed that Tesla hasn’t delivered what it promised. There is a feeling that Tesla has not become the company it was meant to be, and many consumers are now simply tired of its underdelivery and are looking elsewhere.
You might think that Tesla’s main competitors, like BYD and Hyundai, are having just as hard a time keeping up with Tesla’s price cuts, but you’d be wrong. BYD recently set sales and profit records, meaning it now sells more cars and makes considerably more profit per car than Tesla. It’s a similar story for Hyundai, as their EV sales grew 42% in 2023, and those EVs were more profitable than some of Tesla’s models.
But how are these companies not breaking themselves to stay ahead of Tesla’s suicidal price cuts? Simple, they aren’t trying to reinvent the wheel.
Tesla’s 4680 battery used a revolutionary form factor and construction methods like tabless design and dry coating to reach a cheap price point without compromising range or charge speeds. Meanwhile, BYD and Hyundai used proven methods, such as 800V architecture, prismatic cells and cheaper battery chemistry, to achieve the same result. This saved them billions of dollars in R&D compared to Tesla and meant these improvements could be deployed quickly and predictably. As such, Tesla is still chasing its own tail, trying to be a disruptor. Meanwhile, BYD and Hyundai have battery packs that make Tesla’s look expensive and with terrible specs.
The same can be said for Tesla’s Cybertruck and FSD. No other company is pouring billions into these “revolutionary” or “industry-breaking” products. Instead, they are focused on constant, thought-out incremental improvements. That is how they have caught up and overtaken Tesla, as this approach is far less costly and delivers results far more predictably.
You might think that this means that, in a few years, Tesla could leapfrog its competitors as these long-shot projects pay off. But sadly, that isn’t the case.
As Musk switched Tesla’s self-driving program to only sensing the world around the car through camera feeds, there is a serious question of whether this lack of redundancy in the system means it can never be reliable enough for full automation. What’s more, the data and energy requirements for training Tesla’s self-driving AI seem set to make training the AI so expensive that it is unfeasible without a significant computation or energy breakthrough. This also renders Tesla’s robotaxis plans utterly realistic. Even Tesla’s Model 2, which Musk claimed they would sell millions of a year, was doomed to fail. EVs already exist with the Model 2’s price point and specifications. It wouldn’t have been a revolutionary product, and instead, it would have entered an already competitive market with no unique selling point. As such, it would have never sold as well as Musk wanted. No wonder he is moving away from the Model 2 project.
So, is this the end of Tesla? Yes and no.
The slumping sales, stock price drop and un-materialised products are a reality check for Tesla. For years, Tesla has been overvalued as investors across the board bought into Musk’s overexaggerated and separated from reality claims about where Tesla was going and what it was capable of. I believe this could be the end of the world falling for Musk’s bullshit and the death of Musk’s vision for Tesla. Especially as Tesla now has serious competition acting as a mirror highlighting this severe problem. But Tesla isn’t going to die. Their cars are good, and people still want to buy them. This market correction is just Tesla going from being a golden child to an also-ran. As such, Musk needs to run the company less like a start-up desperate for growth and more like a mature company looking to solidify its place in the industry. However, I doubt he is capable of doing this.
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Sources: BBC, The Register, Yahoo, BBC, The Guardian, Electrek, Hyundai, The Verge, Electrek, Will Lockett, Will Lockett, Will Lockett