Don’t joke with Elon Musk: Tesla leads the industry’s gross profit margin, although leading public opinion still possesses a ‘terrible’ position, preparing to rise from the ‘ashes’

Paul English used to be a huge fan of Elon Musk. The tech entrepreneur, co-founder of travel website Kayak, bought his first Tesla in 2013, even pouring capital into the company three years later to “dream” big with Musk, according to the FT.

However, after seeing all that Musk has done since acquiring Twitter, English has changed his mind. He said he is not sure if he will buy another new Tesla in the future.

“Musk had a serious misjudgment,” he said. “Teslas is largely bought by people who love change and love the new. They are mostly educated and libertarian. Guess what educated, freedom-loving people don’t like? Bullies.”

The Twitter takeover has not gone smoothly, has many experts worried that the chaos and political polarization will tarnish the world’s largest automaker’s brand at a sensitive time for the industry. EV vehicle industry. As a result, the fall in Tesla stock that began in the fall has turned into an avalanche, evaporating nearly 70 percent from its peak more than a year ago. Meanwhile, Musk himself is “poor” by $200 billion.

A profound shift in Tesla’s outlook is also taking place. A period of resounding success that saw it peak at nearly $1.3 trillion, while after-tax profits expected to hit nearly $13 billion by 2022 have quickly given way to a dreary economic picture. The backlash from investors has turned Tesla – from a company struggling to meet demand with EVs – to a brand struggling to find customers to justify ramping up production.

Fast-delivery new vehicle growth has slowed to 40% in 2022 from 87% a year earlier. According to experts, this is still a respectable number for a major automaker, but below the 50% mark that Musk himself has set as a growth benchmark.

Tesla is said to be able to weather the downturn thanks to a stronger position than its rivals, thereby setting the stage for the next phase of growth.

According to Philippe Houchois, global auto analyst at Jefferies in London, Tesla is ramping up production at new giant factories in Texas and Germany but is having trouble finding new customers. This leaves Tesla facing a “perfect storm” as supply increases and demand declines. In addition, increasingly fierce competition pushes the global auto industry to the brink of a serious recession.

At this time, many questions have been raised, whether this is the end of the golden growth period of Tesla and also Elon Musk – the most respected innovator in Silicon Valley for a more energetic future. sustainable quantity. However, it is also suggested that the current economic conditions could further boost Tesla’s lead over the rest of the electric car world, thereby bringing Musk closer to his goal of dominating the industry. automotive industry thanks to EV.

According to the FT, although Musk’s Twitter deal has prompted Wall Street to rethink Tesla, there is little evidence that it has had a direct impact on car sales. According to CEO Fiona Howarth, of the “more than 1,000” people who bought Teslas last year from Octopus EV, an electric car rental company that operates in the UK and US, only two have switched to another brand. because of the Twitter deal.

However, this leader also noted that the loyalty level of Tesla owners is dropping significantly. Specifically, as of May this year, about 70% of Tesla owners said they would be able to return to buy a second car. This ratio has now dropped to less than 60%, while the rest of the industry hovers around 65% on average. According to the company HundredX, Tesla’s perception of quality, reliability, service and brand value all became more negative over the course of several months.

“The future loyalty data is really worrying. This foreshadows a storm coming for Tesla,” said Rob Pace, founder and CEO of HundredX, and said Tesla owners are turning to buying electric cars from promising startups. , such as Lucid or Rivian.

It is suggested that current economic conditions could further boost Tesla’s lead.

Inflation and high interest rates reduce demand and increase the cost of producing new vehicles. This follows a series of price hikes Tesla has made during the pandemic because of skyrocketing raw material costs.

According to Adam Jonas, an analyst at Morgan Stanley, inflation has increased the average monthly car price in the US by about 25% over the past two years. Jonas warned that this will reduce demand for the entire electric vehicle industry, thereby leaving Tesla in the face of “a worsening macro backdrop”.

In the US and China, waiting lists for Tesla’s most popular cars are almost gone. The company now delivered only 405,278 new cars in the last three months of last year, a sharp drop from the 500,000 expected by many.

Meanwhile, a decade after the launch of the Tesla Model S, competition in the electric car market is increasingly fierce. As European regulators prepare to completely cut gasoline car sales, global automakers are racing to launch more new electric models instead of limiting sales as before. to achieve emissions targets.

Volkswagen poured billions of dollars into underpinning its VW, Audi and Škoda models, while Hyundai-Kia launched a promising range of new vehicles. Ford and General Motors also announced they would spend between $30 and $35 billion on electric vehicles separately.

According to S&P Global Mobility, Tesla’s share of electric vehicle sales in the US fell to 65% in the first nine months of last year from 79% in 2020. By 2025, the number is forecast to continue to fall below 20%.

“It is natural. They won’t be able to maintain the huge market share they once had as competitors produce more competitive models,” said Howarth at Octopus EV.

According to Carlos Tavares, CEO of Stellantis, the reduction in electric vehicle prices will be key. Last month, Tesla launched its first discount program in China. This move is said to be extremely rare, especially for a company that once boasted that it did not need traditional advertising campaigns. Tesla also upgraded its Shanghai factory to double capacity to about 1 million vehicles a year, and shorten the lead time to buy a car from 22 weeks at the beginning of the year to just one week.

While Musk’s Twitter deal caused Wall Street to rethink Tesla, there’s little evidence that it had a direct impact on car sales.

“We can say that the volume of orders for Tesla in China is not enough. Promotions, including insurance subsidies, are likely to last into next year,” said Wang Hanyang, an auto analyst at 86 Research in Shanghai.

According to experts, Tesla’s next move will determine the final stock valuation. Veteran auto CEO Bob Lutz said investors will likely re-evaluate the automaker’s stock critically after realizing it doesn’t have any particular technological advantage to justify. for its self-identification as a high-growth technology company.

During its heyday, Tesla valued more than the 12 largest automakers on the planet combined, even though their sales were a fraction of that. According to Lutz, who has held senior leadership roles at Ford, Chrysler and GM, this number needs to be more modest to really be appropriate.

However, Musk’s supporters say Tesla is undervalued after a series of more sustainable advantages that the company has built, from battery design to manufacturing engineering, according to Pierre Ferragu, an analyst. analyst at New Street Research.

It is known that Tesla currently maintains the leading gross profit margin in the industry, while other manufacturers with low margins will be forced to cut capital investment. If that’s the case, Tesla will likely emerge from the recession thanks to a stronger position than its rivals, thereby setting the stage for the next phase of growth.

Galileo Russell, one of Tesla’s staunch individual investors, said that while he finds the Twitter controversies “very annoying”, he is still planning to buy a new Tesla after more than three years.

“The media wants to direct the public that Elon Musk will destroy Tesla. However, the majority of those who do not speak out are still supporting him,” said Galileo Russell.

By: FT, Bloomberg