Tesla Gets a $94 Billion Reality Check as EV Winter Sets In - my comments
*Second time posting, before there was a slight error
Tesla Inc. had a blockbuster 2023, as its shares more than doubled in 12 months. But 2024 is starting on a different note, with Elon Musk’s electric vehicle maker off to its worst start to any year — ever.
(In 2016, Tesla’s shares dropped more than 14% during the first nine trading days, but back then the cost of one share was much less than it is now, so this is assuming they were talking in percentage terms.)
The company has lost more than $94 billion in market valuation in just the first two weeks of 2024. It’s not hard to figure out why, as the Austin, Texas-based EV maker has been pounded by a barrage of negative news: an about-face on EVs from the car rental giant Hertz Global Holdings Inc., yet another price cut for its cars made in China, and signs of rising labor costs.
(If you think about it for a moment, this isn’t actually that surprising. Ever since Tesla launched, there have been countless new startups looking to enter the EV market just like Tesla did. Because of this Tesla is facing much more competition especially in China than back then when EVs weren’t widely accepted.)
All of this comes in the face of slowing growth in demand for EVs, especially in the US.
(Tesla’s newest models such as the Cybertruck haven’t been much of a success for Tesla. Demand for them is slowing down - and therefore for EVs as well.)
“Investors’ main concern on Tesla is stagnating growth,” Cowen analyst Jeffrey Osborne said in an interview. The price cuts in China only fan those concerns, because it is starting to look like “a race to the bottom for the EV industry given intense competition in that market.”
(With Chinese companies gradually developing better technology for EVs, Tesla’s somewhat fast growth looks like it is coming to a halt. Also, Tesla’s newest models have also been causing slight difficulties in the production line and other sectors, not mentioning that they aren’t that much of a success.)
The hit to Tesla’s market capitalization to start the year is the biggest the company has seen over a similar period since it went public in 2010. In percentage terms, Tesla’s 12% drop since the start of January is the worst since 2016, when the stock fell 14% over the first nine trading days of the year.
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To make matters worse, the odds of an imminent turnaround for the EV maker don’t look good.
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Tesla has been cutting prices on its cars aggressively since early 2023 in an effort to boost demand. But the result has been a steady erosion of its once-hefty profit margin. Tesla’s automotive gross margin ex-regulatory credits for the third quarter fell to 16.3% from 27.9% a year ago. And the pressure is only mounting, now that production workers at Tesla’s US plants are getting pay raises.
(Tesla is pretty much one of the best companies at reducing the cost of the raw materials needed to make their products. However, it looks like most of the demand from their products such as the Model S, for example, have died down, while Tesla’s newest products haven’t been much of a success like the Cybertruck, for example.)
“We are going through a cyclical downturn for EVs, but competitive dynamics are exacerbating the cyclical pressures,” Ivana Delevska, chief investment officer at Spear Invest, said in an interview. “Price cuts and plummeting margins are all a function of these unfavorable competitive dynamics.”
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Adding to the woes, Tesla has had to re-route shipments destined for its Berlin plant after Western military actions and security concerns in the Red Sea, and is suspending most production at its plant near Berlin from Jan. 29 to Feb. 11, according to a person familiar with the matter.
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A impatient, emotional investor with 200 IQ will lose against a patient, non-emotional investor with 90 IQ.
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