Tesla’s problems raise questions about his invincibility
Elon Musk appeared to be in a defiant mood on Wednesday as he stood before employees at the Tesla factory near Berlin, a week after an arsonist set fire to a power pylon and brought production to a standstill.
“They can’t stop us,” Mr. Musk, the company’s CEO, told workers in a giant tent next to the factory.
But there are increasing signs that Tesla may not be as unstoppable as it once seemed. The company’s car sales are no longer growing at a breakneck pace. Chinese car manufacturers and established brands such as BMW and Volkswagen are flooding the market with electric cars. And Tesla is slow to respond with new models.
Musk’s many outside ventures and his penchant for making polarizing political statements and attacking people he disagrees with have raised questions about how focused he remains on driving Tesla. Wall Street is increasingly concerned about the company: Tesla’s share price has lost a third of its value this year, while major stock indexes hit record highs.
“A bet on Tesla has always been a bet on Mr. Musk,” said Eric Talley, a professor at Columbia Law School who focuses on corporate law, governance and finance.
In an interview with former television host Don Lemon that streamed online On Monday, Mr Musk brushed off the decline in the company’s share price as part of the cycle.
“Stocks go up and down, but what really matters is whether we make and deliver great products,” Musk said.
The week-long production stop at Tesla’s Grünheide factory, the second this year, was only a temporary setback. But the share price drop signals that investors are reassessing Tesla’s long-term prospects and are no longer confident that the company — which is still worth more than any other automaker — will one day dominate the sector.
Mr. Musk can take much of the credit for pushing other automakers to focus on electric cars, proving they can be practical, profitable and fun. Tesla’s Model Y SUV was the world’s best-selling car last year.
But Tesla hasn’t added a mass-market vehicle to its lineup since the Model Y hit the market in 2020. Chinese car manufacturers such as BYD, SAIC and Geely Auto are releasing dozens of new models. Analysts said Tesla’s Cybertruck, a futuristic pickup that went on sale in limited numbers last year, would likely appeal to a relatively limited number of buyers given its high price and unconventional design. And while Tesla is working on an electric car that will cost around $25,000, it is not expected to come to market in large numbers until 2026.
“I’m a little surprised at this point that there hasn’t been a next step yet,” said Michael Lenox, a business professor at the University of Virginia who studies industries undergoing technological change.
Tesla has repeatedly adjusted prices in response to demand, lowering them to boost sales and sometimes raising them again. While the cuts have helped make electric cars more affordable, analysts say the strategy has eroded the company’s profits without doing much to boost sales. The cuts have also sharply reduced the resale value of Tesla cars, because no one pays more for a used car than a new one.
The strategy trains potential buyers “to wait for a deal,” Gary Black, managing partner of the Future Fund, said of X. Mr. Black, who has more than 400,000 followers on X, which Mr Musk owns, has long been a Tesla optimist, but the fund recently sold some of its shares in the company.
Tesla faces particularly stiff competition in China, the world’s largest auto market, where more than a third of new car sales are electric. BYD surpassed Tesla in global electric vehicle sales in the last three months of 2023 with a wide range of sedans, SUVs and low-cost subcompacts. The Seagull model sells for less than $12,000 in China.
Even after Tesla’s price cuts, the Model 3 sedans and Model Y SUVs made at a Shanghai factory are much more expensive than many Chinese models. European and Chinese automakers are also introducing new electric vehicles at a staggering pace. According to HSBC, more than 150 units will be on sale by the end of the year.
At the same time, Tesla isn’t well positioned to compete in the luxury market because its cars don’t offer as many features as cars from the likes of BMW or Mercedes-Benz, said John Helveston, an assistant professor of engineering management at George Washington University who studies Chinese car-buying behavior. has studied.
“In China there are so many great options that Tesla just falls in the middle,” Mr. Helveston said. “It is far too expensive a car for the luxury you get in it.”
Tesla has not told investors how it will regain ground in China, which generates most of its sales. The company did not respond to a request for comment.
“What will they pull from their toolbox, other than price cuts, to keep them in the mix in 2024?” asked Tu Le, director of Sino Auto Insights, a research firm. “The price reduction instrument has lost its effectiveness.”
Mr. Musk’s disdain for the established way of doing things, as well as his love of big technical challenges, have made it difficult for Tesla to quickly bring new products to market, Mr. Helveston said. The Cybertruck is an example of this. It is made of stainless steel, which is more resistant to rust than conventional steel, but is known for being difficult to work with. The truck arrived two years behind schedule and took up resources that could have been used for products with broader appeal.
“Tesla could do a lot better than it does now if they had been less aggressive in their attempts to do everything new and used half of the existing knowledge that works,” Mr Helveston said.
But doing new things excites Mr Musk, who chuckled with joy as he told Mr Lemon about the updated version of the company’s Roadster sports car, which he says Tesla plans to launch by the end of the year . The vehicle will combine technology from Tesla and its rocket company SpaceX, “to create something that isn’t really a car,” he said.
In Europe, the Model Y was the best-selling electric car last year. But according to Schmidt Automotive Research, Volkswagen and its Audi, Skoda and SEAT brands combined sold more electric vehicles than Tesla on the continent. Sales of the Model Y fell at the end of the year after Germany and other countries cut subsidies.
Tesla could also face restrictions that the European Union is considering imposing on Chinese imports. All Model 3 sedans sold in Europe and the right-hand drive Model Y for Britain are imported from Shanghai. According to Schmidt, Tesla is responsible for one in four Chinese-made cars imported into Europe.
“This would reduce the impressive, but nevertheless shrinking, profit margins and create a more level playing field for European carmakers that produce locally,” said Matthias Schmidt, founder of the research firm. He noted that France has taken protectionist policies a step further by limiting government subsidies for the purchase of electric vehicles to vehicles produced in the European Union. Italy has indicated it will do the same.
Mr Musk is also a source of uncertainty. In January, a Delaware judge struck down his pay package, worth more than $50 billion, saying Tesla’s board used a flawed process in negotiating his compensation. In response, Mr. Musk threatened to move Tesla’s company registration from Delaware to Texas.
Tesla’s board has not unveiled a new pay package for him. Mr. Musk, who oversees SpaceX and several other companies besides Tesla and X, has threatened to pursue unspecified new ventures beyond Tesla unless he gains control of 25 percent of the company. He currently owns about 13 percent.
“You now have a grumpy CEO,” says Mr. Talley of Columbia Law School. “What does that mean for Tesla’s ability to get Musk’s attention? Is it possible that he will simply retire from the company?
Musk’s lightning visit to Grünheide appeared timed to show employees in Germany, some of whom had raised concerns about their safety after the arson, that he remains committed to the company and the factory. The factory produces approximately 300,000 cars per year, but wants to expand that number to as many as one million.
Asked by reporters if he planned to stick to that plan, Mr. Musk replied: “Yes, absolutely.”
Mara Hvistendahl reporting contributed.