Tesla Has Lost $240 Billion In Value This Year, Why?
Tesla Has Lost $240 Billion In Value This Year, Why?
Can Tesla stay on top?
Tesla used to be the hottest stock in town, famously valued way above any other automaker. Its rocket-like growth seemed it would never stop. But, so far this year, Tesla has lost a staggering $240 billion in value, making it the worst-performing company in the S&P 500! Tesla’s value has slumped in the past, but they were little blips compared to this colossal downturn. But why? Tesla’s Model Y was the best-selling car in the EU last year, the Cybertruck has started deliveries, and Tesla is building a custom supercomputer to significantly advance its self-driving AI; surely, all this should bolster Tesla’s value? Well, there are three main reasons. Let me explain.
The first is China. Tesla is being absolutely hammered by this eastern juggernaut’s EV industry.
Tesla actually warned its investors back in January that its sales figures would be “notably lower” than 2023 levels. Why? Well, Tesla’s sales figures in China are way behind where they were predicted to be. Domestic companies in this market are massively undercutting Tesla with EVs that have the same or better range, charge times and performance for thousands of dollars less than a Tesla. They can do this thanks to better manufacturing, more integrated raw material supply, and better proprietary technology. In fact, BYD, now the world’s largest EV maker, actually sells its incredible Blade Battery to Tesla to use in its EU-made Model Y RWD.
This has led to Tesla cutting prices, which has dramatically reduced its profit margin from 23.8% in 2022 to 17.6% by the end of 2023. Meanwhile, BYD’s profit margin sits at a comfortable 22.12% despite its prices being significantly lower than Tesla’s. This is worrying, as Bloomberg recently reported that Tesla has slimmed down its Shanghai factory, taking it from being operational six and a half days a week to just five. In other words, Tesla can’t boost its sales figures by cutting prices, as companies like BYD can always sell EVs cheaper. This means that Tesla’s factories have too big of a capacity, as they can’t meet their sales figures and need to run slower to ensure they don’t oversupply their dwindling demand. This labours more cost onto Tesla, making this whole price and sales figures issue even worse. To add insult to injury, these Chinese EV makers are starting to expand into Western markets, meaning that these same issues will happen in other markets in the coming years, meaning this issue will only get worse for Tesla.
To solve this problem, Tesla needs something other than good value to increase its sales figures — something that would make customers ignore the cheaper option and splash out on a Tesla. Well, that was what Tesla’s self-driving technology was supposed to be. Sadly though, Musk may have ruined these systems.
I have covered this in the past, but when Musk switched Autopilot and FSD to Tesla Vision, where the self-driving AI only uses cameras to sense the world around it, he kneecapped the system (read more here). His own engineers advised him against the move and even went to the press to report how the new Tesla Vision system had significant safety issues. This, combined with damned investigations and reports from the Washington Post, NTSB and the DoJ, along with a tsunami of lawsuits into fatal crashes caused by Tesla’s self-driving systems, have massively dampened the public’s perception of Autopilot and FSD. What’s more, Tesla’s own mileage statistics show that customers who paid for FSD, which is meant to be nearly fully autonomous, only use it 15% of the time they are driving. FSD is a $15,000 feature that, if it works as well as Musk claims, you should want to use and trust to use way more than 15% of the time!
All of this, combined with Musk’s constant claims that Teslas will “drive themselves next year” since 2016, has massively eroded people’s trust in Musk and Tesla’s self-driving program. So, even though Tesla is building a massive custom-built AI training supercomputer that should improve their self-driving AI, customers, investors and banks are not convinced this will bring Musk’s self-driving fantasy to fruition. As such, Tesla’s way out of its China problem, in terms of stock value and sales figures, is currently firmly closed.
This brings me to the third, less tangible reason why Tesla is slumping. Branding.
Wells Fargo analyst Colin Langan has predicted that Tesla might lose its “luxury brand premium.” You see, a few years ago, the EV technology and minimalist design of a Tesla were perceived as a luxury, and people were happy to pay a premium for it. But now, the minimalist design is feeling like more of a cost-saving move than a cutting-edge design. What’s more, genuine luxury brands like Audi, Porsche and Mercedes have EVs with the same or better ranges, charge times and performance but with genuine luxuries like beautiful interiors, massaging and ventilated seats, giant screens, more refined ride quality, better self-driving systems, automotive pedigree and better aesthetics. As such, Tesla is on the verge of not being perceived as the luxurious cutting-edge newcomer, and instead being seen as the budget-friendly alterative like a Toyota. That change alone could cause many potential Tesla customers to go elsewhere.
There are some possible solutions for Tesla here. Musk has pointed out that their profit margin should bounce back as interest rates drop, enabling them to continue fighting the price war. But if you look at the global economy, interest rates will probably not drop any time soon. As such, Tesla has to face that it won’t be the golden child EV company for much longer. The shine has been tarnished by some of Elon’s questionable leadership and rhetoric. This doesn’t mean Tesla will stop being influential or a major player in the EV world. It just means it won’t dominate as we once thought it would.
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Sources: Will Lockett, The Street, Bloomberg, Planet Earth & Beyond, Y Charts, Euronews