Tesla Inc., which experienced a stellar performance in 2023 with its shares doubling, is now grappling with its worst start to a year in its history.
The electric vehicle giant has witnessed a staggering loss of over $94 billion in market valuation within the first two weeks of 2024.
A series of adverse events, including Hertz Global Holdings Inc.’s shift to EVs, price reductions for Chinese-made cars, and indications of increasing labour costs, have contributed to this downfall.
The primary concern among investors revolves around Tesla’s stagnant growth, especially with a notable decline in demand for EVs, particularly in the US. Analysts highlight that the price cuts in China intensify worries, depicting a potential “race to the bottom” within the competitive EV market.
The impact on Tesla’s market capitalization at the beginning of this year is the most substantial the company has faced since its IPO in 2010.
In percentage terms, Tesla’s 12% drop in January marks its worst since 2016. Moreover, the prospect of a swift recovery for the EV manufacturer seems bleak.
Tesla’s aggressive price-cutting strategy since early 2023, aimed at boosting demand, has led to a steady erosion of profit margins.
The automotive gross margin, excluding regulatory credits, fell from 27.9% to 16.3% in the third quarter of 2023. Rising production costs, including pay raises for US plant workers, further add to the company’s challenges.
Competitive dynamics and a cyclical downturn in EVs contribute to Tesla’s struggles, reflected in plummeting margins and intensified price cuts.
Compounding these issues, the redirection of shipments due to geopolitical tensions has prompted a suspension of most production at the Berlin plant from Jan. 29 to Feb. 11.
Despite these setbacks, Tesla maintains a crucial role in the global transition to electric vehicles, given its significant lead over potential rivals. Although China’s BYD has surpassed Tesla in units sold, Tesla’s dominance in the US market sets it apart.
Elon Musk, Tesla’s CEO and the world’s richest person, faces a personal setback as well, with his net worth dropping by $23 billion in the early weeks of 2024.
Musk’s fortunes, closely tied to Tesla and SpaceX, underscore the challenges faced by the company’s leadership.
Tesla’s current predicament reflects a stark contrast to its past success, as heightened investor expectations have left the company vulnerable to significant market reactions.
Despite the challenges, Tesla remains a pivotal player in the global shift towards electric vehicles, navigating a complex landscape in its quest for sustained growth.
