Tesla is far from its time as the darling of Wall Street.
Gone are the days when its market valuation surpassed $1 trillion at the end of 2021 and everything indicated that the electric car giant was invincible.
At that time it was breaking production and delivery records, while its shares rose to take the company to the place of giants such as Apple or Amazon.
Now, the workhorse of Elon Musk, its founder and CEO, faces great challenges that complicate its path to advance in a highly competitive market.
Its sales, profits, market value and the confidence of many shareholders in the company’s long-term capacity for innovation and growth have fallen.
Electric vehicle companies in China have lowered their prices, affecting demand for their cars, and the recent layoffs announced by Musk were not well received by the market.
Some of the company’s problems began in October when Musk warned that demand was starting to slow.
And when its biggest competitor, Chinese giant BYD, briefly overtook Tesla as the world’s biggest seller of electric cars in the final quarter of last year, things weren’t looking good.
Announcements such as the cut in production at the Shanghai Gigafactory and the problems related to the production of the Cybertruck and autonomous cars did not help to improve the mood either.
A good portion of analysts and investors say that while building a fully autonomous vehicle is crucial to Tesla’s prospects, making an affordable electric car is important to driving growth today.
This week, the news has not been positive for the American company after the publication of results below the expectations of market analysts.
Since its creation in 2003, Tesla’s history has always had ups and downs. Many wonder if this is another one of those crises that will pass like the rest, or if the giant has reached a breaking point.
Here we tell you four facts that explain the crisis the company is going through.
1. Layoffs
Tesla announced in mid-April that will lay off more than 10% of its employees worldwide as part of a restructuring plan that aims to lower costs and improve the company’s position.
This internal restructuring, after years of rapid expansion and which will affect some 15,000 employees, generated concern in the markets, given that it adds to a significant decrease in vehicle deliveries so far this year.
“There’s nothing I hate more, but it has to be done,” Musk said.
Analysts at Gartner and Hargreaves Lansdown argued that the cuts were a sign of cost pressures as the automaker invested in new models and artificial intelligence.
A few days ago, one of the members of the executive team, Andrew “Drew” Baglino, said in a post on X (formerly Twitter) that he had made the “difficult decision” to leave the company after 18 years, adding more uncertainty to the changes in the company.
The impact of these departures on Tesla’s future direction and strategy worries investors, especially with respect to the company’s leadership succession.
Musk has led Tesla since 2008, but his attention has been divided between other projects, such as SpaceX and Neuralink.
The departure in August of CFO Zachary Kirkhorn, another likely successor, was also interpreted as a sign of uncertainty.
The debate has been revolving around two fundamental things: the challenges the company faces in terms of its growth strategy and its direction.
2. Benefits
This week the giant announced its performance during the first quarter of this year. If concern was already accumulating among some of the company’s investors, the data revealed only fueled a climate of uncertainty regarding future plans.
The firm recorded a spectacular drop in profits of 55% compared to the first quarter of last year.
Tesla also reported a 9% revenue decline in the first quarter, marking its biggest year-over-year drop since 2012.
Another element that worked against the company so far this year was the recall of its most recent vehicle, the Cybertruck.
The vehicle had a fault in the accelerator that increased the risk of accidents.
3. Sales
In the reports that Tesla delivers quarterly to its shareholders, the company refers to “deliveries”, that is, the cars that the company delivers after having received purchase orders.
In this way, car deliveries are the closest approximation to the concept of car sales, since sales are not precisely defined in the company’s formal communications, as explained by CNBC.
Thus, vehicle deliveries fell by 8.5% year-on-year in the first quarter of the year, which implies their first drop since 2020.
This drop, experts say, may be related, in addition to the underlying causes, to some circumstantial factors such as interruptions in global maritime transport or a fire in its European factory.
The scenario is complex not only because of the drop in sales, but also because of the price cuts to its vehicles.
A few days ago it was announced that the company would reduce the price of the Y, X and S models by about US$2,000 each.
Despite all the challenges, Elon Musk maintained an optimistic speech this week about the company’s prospects and told investors that he will bring forward the launch of new models starting in the second half of 2025.
In dialogue with shareholders, Musk made it clear that he also has bigger ambitions, such as his bets on autonomous vehicles and the development of artificial intelligence.
However, these ideas have been questioned by some analysts, with Deutsche Bank stating that driverless vehicles face “technological, regulatory and operational challenges.”
4. Market value
Tesla shares had already fallen over the past year, reflecting factors such as high interest rates in many countries having made access to financing to buy its electric cars more difficult.
The company’s share price has fallen 40% so far this year, with a market valuation close to US$460 billion (at the close of this Wednesday).
And since November 2021, when the stock was worth more than $400, it has dropped to around $162.
The 40% drop in Tesla shares this year has taken it down a few notches on the lists of the largest companies in the United States.
The company was seventh by market capitalization within the S&P 500 earlier this year, according to Dow Jones Market Data, but is now ranked No. 14.
Within a panorama that seems to be not very encouraging, Tesla explained this week that it would introduce “new models” next year, without offering more details. At the same time, it said it was shelving plans to produce an entirely new lower-priced model, which was expected to cost $25,000.
Tesla “should be thought of as an AI robotics company,” not an automaker, Musk said.
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