Tesla gets $94 billion reality check as electric vehicle winter begins

(Bloomberg) — Tesla Inc. Big hit in 2023, with shares doubling in 12 months. But 2024 is starting differently, with Elon Musk's electric carmaker off to the worst start ever.

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The company lost more than $94 billion in market value in just the first two weeks of 2024. It's not hard to see why, as the Austin, Texas-based electric car maker has been bombarded with negative news: It faces electric cars from car rental giant Hertz Global Holdings Inc., saw another drop in prices for its made-in-China cars, and signs of rising labor costs.

All of this comes in the face of slowing growth in demand for electric vehicles, especially in the United States.

“The main concern for investors about Tesla is stagnant growth,” Cowen analyst Jeffrey Osborne said in an interview. Price cuts in China are only fueling these concerns, as they are beginning to look like “a race to the bottom for the electric car industry in light of the intense competition in that market.”

The hit to Tesla's market value at the beginning of the year is the largest the company has seen over a similar period since going public in 2010. In percentage terms, Tesla's 12% decline since the beginning of January is the worst since 2016, when it fell by 14% during the first nine trading days of the year.

To make matters worse, the prospects for an imminent shift for the electric car maker do not look good.

Tesla has been aggressively reducing the prices of its cars since early 2023 in an attempt to boost demand. But the result has been a steady erosion of its once-large profit margin. Tesla's pre-regulatory credits gross margin for the third quarter fell to 16.3% from 27.9% a year ago. The pressures are mounting now, after production workers at Tesla factories in the United States are receiving wage increases.

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“We are experiencing a cyclical downturn for EVs, but competitive dynamics exacerbate cyclical pressures,” Ivana Delevska, chief investment officer at Spear Invest, said in an interview. “Price reductions and declining margins are all a result of these unfavorable competitive dynamics.”

Adding to the problems, Tesla was forced to redirect shipments destined for its factory in Berlin after Western military actions and security concerns in the Red Sea, and it also suspended most of the production at its factory near Berlin from January 29 to February 11, according to what the newspaper reported. British Daily Mail. To someone familiar with the matter.

Not strong enough

Tesla first warned of a slowdown in demand for electric vehicles during its October third-quarter earnings report. Almost immediately afterward, automakers and suppliers around the world made their pessimistic forecasts. Many automakers have backed away from their expansion plans.

Then, earlier this month, Tesla announced its fourth-quarter delivery numbers. Although it was better than analysts expected, it placed the company behind China's BYD in global electric vehicle sales.

The result was a rude awakening for Tesla investors. Last year, the stock was the eighth-best performer in the S&P 500. So far this year, it's the eighth-worst performer.

Of course, Musk takes a big hit on a personal level. The world's richest person, who gained more wealth in 2023 than anyone else on the planet, has seen his net worth shrink by $23 billion so far this year, according to the Bloomberg Billionaires Index. Musk regained the top spot on the Bloomberg Wealth Index last year, overtaking Bernard Arnault, but Jeff Bezos is now fast approaching, with $179 billion versus Musk's $206 billion as of Friday's close.

The bulk of Musk's net worth comes from his 13% stake in Tesla and about 304 million exercisable stock options. He also owns about 42% of SpaceX, which is valued at about $53 billion, according to the Bloomberg Wealth Index.

Still first

With all that said, Tesla remains a major player in the global shift from gas-powered cars to largely electric vehicles. The reason: It's far ahead of its potential competitors. China's BYD may have overtaken Tesla in the number of units sold, but it still lags behind in revenue and profits. BYD does not sell cars in the United States, where Tesla remains the market leader.

In many ways, Tesla's biggest problem may be its past success and the hope it generated. As investors piled into the stock, Tesla's market cap swelled, making it far larger than any other car company in the world. However, with the stock being perfectly priced, this has also made it highly vulnerable to big reactions to any negative news.

That's why many Tesla supporters argue that it shouldn't be compared to regular car companies. For them, the company's ultimate true value lies in the future, and it hopes to develop the first truly self-driving vehicles. The only problem is that Tesla has been promising this for years, and most experts say the technology is still years, perhaps even decades, away.

“Tesla was not able to deliver on the promises of full self-driving and artificial intelligence, which were already included in the evaluation,” Spear's Delevska said. “Being just another automaker isn't going to bring its valuation down to $750 billion.”

–With assistance from Matt Turner, Christine Oram, and Ed Ludlow.

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