For the past decade, Tesla has been the growth company. It has revolutionised several industries and, in the process, garnered a truly gargantuan market share and driven its stock price to the Moon. However, this disruptive and revolutionary approach can’t produce growth indefinitely, and Tesla is coming to the end of its growth. That isn’t just me saying that; several major investment banks, brokers, and funds that used to be big Tesla supporters are now backing off from their positions on Tesla and downgrading their predictions of its future. Wells Fargo even branded Tesla a “growth company with no growth.” So what has changed? And is Tesla doomed to stagnate from here?
Let’s start with the obvious elephant in the room. Self-driving.
Many serious analysts used to predict that Tesla would be worth well over a trillion because of its self-driving technological lead. A few years ago, such a future seemed 100% plausible. It doesn’t now because of Musk’s silly decision to go against his engineers.
You see, back in 2021, Musk switched all Teslas to Tesla Vision. This meant that Autopilot and FSD would use only video data to understand the world around them. The update also meant that old Teslas would stop using their ultrasonic and radar sensors, and new Teslas would be built without them. Musk’s engineers warned against the move and have even come forward, saying it made the system significantly less safe. Why did Musk make this myopic decision? It seems it was to make production cheaper.
However, this decision also kneecaps any future development of Tesla’s self-driving ability. For a system to reach proper levels of automation, it needs redundancy. In other words, if one system keeping the car safe fails, another one can take its place. Cars with radar, lidar and ultrasonic sensors have this redundancy; if one sensor type fails or misreads, the others can take its place. That way, it is safe for the driver to not pay attention. But Tesla now has no such redundancy. What’s more, as any photographer will tell you, video feeds fail all the time. Files get corrupted, lenses get dirty, lighting conditions cause whiteouts, etc. In other words, Tesla physically can’t reach the safety standards needed to create a truly autonomous vehicle.
Tesla has also backed itself into a corner with Tesla Vision. It has been gathering only video data for years now and only training its self-driving AI on video data. If Tesla wanted to introduce other sensors to create a redundancy system, it would set them back significantly as the AI would struggle to adapt!
So, it seems like Tesla is no closer to creating a fully autonomous car than anyone else. In fact, it might not ever be able to create one with its current approach. This realisation is part of why many investors, banks, and funds have all massively downgraded their future predictions of Tesla’s profits and value.
The only other way Tesla can grow is to take a larger share of the EV market. Recently, Tesla has been doing this by aggressively cutting all its models’ prices. However, Wells Fargo has noticed that the prices are falling faster than the company’s sales rate is increasing. In other words, Tesla needs new, cheaper models to increase its market share. The upcoming budget Tesla, dubbed the “Model 2”, is set to do just that. Musk predicts that they will sell over a million units per year, and as such, many investors point to the Model 2 as the core driver of Tesla’s next significant growth phase.
But there are two huge issues with this. The Model 2 will be far from a first mover, and there is little evidence of such demand.
Tesla hasn’t yet released the full specs and prices of the 2, but there have been enough press releases and hints from Musk to put together an idea of what it will be like. We know it will be VW golf-sized, have a 53 kWh battery pack, a range of 250 miles, fast charge times of under 30 minutes, and a price tag of $25,000. It’s slated for production to start in 2026, but recent analysis by Evercore suggests it won’t reach the million-unit-per-year scale until 2027. I doubt they can even do that, but let’s use Evencore’s analysis.
Well, such a vehicle coming out in 2026/2027 won’t be the first of its type on the market. Take the Škoda Equip, which will launch in 2025 for $25,000 (equivalent). For that, you will get a massive 490 litres of luggage space, more than 250 miles of range, and 20-minute 10% to 80% charge times. This Škoda shares the same platform, specs and price point as the VW ID2, which will be coming out the same year and, unlike the Škoda, will be sold in the US. But there is also the BYD Dolphin, Fisker Pear, Citroën EC3, Smart #1, Chevrolet Bolt EUV, Kia EV2, and MG MG4, which all have the same or better price and specs as the Model 2 and are all either already for sale or will hit the market before the Model 2.
In other words, how can Tesla expect to sell the Model 2 in such vast quantities in such a crowded market? Especially as anyone waiting for a $25,000 250-mile EV will have most likely bought one from one of Tesla’s rivals before the Model 2 hits the market.
But even if the Model 2 didn’t have such ferocious competition, I doubt it would sell a million units a year. Take the MG MG4. It’s been for sale in practically every country apart from the US and Canada for a few years. Its Long Range trim costs the equivalent of $28,990, has a WLTP range of 280 miles, will charge from 10% to 80% in 24 minutes, and it has won numerous awards, including including the “Car of the Year” in the United Kingdom, France, Germany, and Australia. It is practically identical to the Model 2 in specs and price, and having driven one myself, I can happily say the quality is on par with a Tesla. What’s more, it was the first genuinely affordable long-range fast-charging EV. Yet, MG has only sold at most 10,000 units per month internationally. That’s less than an eighth of what the Model 2 is predicted to sell.
So, why would the Tesla Model 2 sell at a rate eight times more than a car that will be 5 years old when it launches, with basically the same specs and price?
Quite simply, it won’t. You see, Tesla is no longer a disruptive startup. It’s a mature company fighting in a mature market. It can’t keep looking for paradigm-breaking revolutions to grow, or worse, falsely claiming it is on the precipice of such revolutions to grow. Tesla needs to find more reliable and genuine ways to grow, such as joint venture vehicle platforms, dealership network sharing or developing alternative batteries such as sodium-ion, LFP, lithium-sulfur or solid-state, either by themselves or with partners. If Musk keeps his authoritarian, disruptive, lone-wolf leadership of Tesla up, then I believe it has already reached its peak and won’t grow from here.
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Sources: Autocar, Will Lockett, ANE, Motor 1, Inside EVs, SAIC Motors, The Street, IMD, EV Database