Who knew Tesla’s New Year celebration with such massive numbers on soaring share price would be cut short so soon into 2024? Looks like Tesla is struggling to keep its winning streak going.
As 2024 begins, Tesla, led by Elon Musk, is facing a tough start to the year as the valuation caused a $94 Billion loss. Unlike the previous year when things went really well and the company’s shares doubled, this year is different.
Tesla is dealing with challenges, and it’s a big change from the success they had before. Elon Musk’s company is going through a rough patch, creating a contrast with the good times they had in the past. Let’s dig deeper!
Tesla $94 Billion Down the Drain
In a staggering turn of events, Tesla has encountered a substantial setback in the initial weeks of 2024, witnessing a daunting loss exceeding $94 billion in market valuation. The roots of this financial downturn are discernible, as the Austin, Texas-based electric vehicle manufacturer grapples with a relentless barrage of adverse developments.
Notably, the abrupt change in electric vehicle (EV) plans by the renowned car rental giant, Hertz Global Holdings Inc., has dealt a significant blow. Furthermore, Tesla has implemented yet another price reduction for its cars manufactured in China, amplifying the strain on its financial standing.
Compounding these challenges are indications of escalating labor costs, contributing to the overall turbulence faced by the company. Amidst these headwinds, the broader backdrop of decelerating demand for electric vehicles, particularly in the United States, adds another layer of complexity to Tesla’s current predicament.
Tesla Stock Stumble Shocks Investors
On February 7, Gary Black from the Australian funding company Future Fund shared on X that Tesla dropped to the ninth spot in market value. He mentioned that investors no longer see Tesla as part of the “Magnificent 7,” which used to mean being among the top names, the coolest growth stock, and the best in America.
Top U.S. market cap companies:
1/ MSFT $3,002B
2/ AAPL $2,915B
3/ GOOG $1,795B
4/ AMZN $1,745B
5/ NVDA $1,646B
6/ META $1,165B
7/ BRK $851B
8/ LLY $660B
9/ TSLA $582B
10/ AVGO $572B— Gary Black (@garyblack00) February 6, 2024
Tesla’s stock has gone down by almost 26% in 2024, going below important support levels. This decline happened after CEO Elon Musk gave a cautious outlook on a January 24 earnings call without many details.
Now, people are wondering when is the right time to buy or sell Tesla stock, especially as they wait for updates. Investors are wondering how much money Tesla is making from selling cars and whether the prices of their cars will stay steady.
Tesla Q4 Earning Takeaways
Here are the main points from the earnings call on January 24:
- Elon Musk said that if interest rates don’t go down, Tesla’s profits might stay low because high-interest rates are causing problems.
- The CEO repeated that he wants to have 25% of the voting control before Tesla does more in artificial intelligence.
- Elon Musk mentioned that Tesla’s humanoid robot, Optimis, might be ready to be sent out by 2025.
- Regarding the Cybertruck deliveries, Musk explained that the problems are more about making the trucks, not people wanting to buy them.
Tesla Vs. BYD: EV Industry Slowdown
The electric vehicle (EV) industry has been dealing with a slowdown in demand for more than a year, and Tesla’s decision to lower prices might make things tougher for both new companies and established ones like Ford. According to Michael Hewson, who analyzes markets for CMC Markets, Tesla faces a challenge.
If they try hard to sell more cars now, it could mean making less profit, as they have to compete with BYD in China and face stronger competition in other places. So, Tesla is in a bit of a tricky spot, trying to boost sales without hurting how much money they make.
According to Reddit user Bruce_Wayne_Imposter, history might be repeating itself in the car industry.
Back in the 70s, American car makers focused a lot on big and fancy cars, letting Japanese brands take over with smaller, more affordable ones. Now, the same user sees a similar pattern.
American car companies are putting a lot of effort into making big and luxurious electric cars but are not paying much attention to smaller and cheaper options. This might give Chinese brands a chance to take over the market with their affordable cars, just like how Japanese brands did in the past.
The user suggests that if American car companies don’t start making more affordable electric cars, Chinese brands could soon dominate the market without much competition.
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Users might actually have something with their understanding as famous carmakers, be it Ford or GMC, all are focusing on making their EVs premium and not affordable.
Another Reddit user with the username steelyborealis says:
“Chevy had the bolt EUV out for 30k out the door after rebates a couple of years ago when you could barely buy a used car for that price. It sold out IMMEDIATELY. 6-month th waitlists everywhere.
So what’d they do?
Discontinued the line to make way for the electric chevy blazer, 10-20k more for a bigger electric car than the one the market demanded, into a space several other manufacturers were already moving.
Like…BASIC business school case studies will be w ritten about this. So dumb.”
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Is BYD a Threat to Tesla?
In the whirlwind of recent developments in the automotive world, Tesla appears to have faced a substantial setback, losing a staggering $94 billion in market valuation within the initial weeks of January.
The once-unchallenged electric car giant seems to be grappling with what some describe as an “electric car winter.” The disruptor-in-chief, BYD, has taken center stage with a series of strategic moves, including plans for a European car plant in Hungary and the announcement of surpassing Tesla as the world’s leading electric car manufacturer.
Furthermore, BYD’s foray into the maritime industry with the launch of large, dual-fuel ships has added a new layer to the competitive landscape. Meanwhile, Elon Musk, the face of Tesla, is not just contending with corporate challenges but is also experiencing a personal financial setback, witnessing a reduction of $23 billion in his net worth so far this year.
These twists and turns in the automotive saga highlight the dynamic nature of the industry and the evolving competition that even the most influential players like Tesla must navigate.
What Does All This Mean For Tesla’s Future?
Tesla faced a challenging start to 2024 as Wall Street significantly scaled back profit projections following the company’s disappointing fourth-quarter earnings report in late January.
The results, labeled a “train wreck” by long-time Tesla supporter Dan Ives, revealed a 40% drop in Q4 earnings to 71 cents per share. Although quarterly revenue increased by 3.5% to $25.17 billion compared to Q4 2022, Tesla’s gross profit margin declined to 17.6%, down 612 basis points.
In the broader context, Tesla’s 2023 earnings per share fell by 23% to $3.12, while revenue saw a 19% increase to $96.77 billion.
Tesla enthusiast and Morgan Stanley analyst Adam Jonas observed that the 2024 forecast lacked sufficient detail, marking it as the “least detailed we remember.” Jonas expressed concerns, suggesting that Tesla’s profitability might decline to around the $2 per share level.
Things are not looking great for Tesla right now. Despite trying to boost sales by cutting car prices a lot since early 2023, it’s causing problems. Tesla’s profits, which used to be quite high, are now going down because of these aggressive price cuts.
On top of that, the company had to change the route for shipments going to its Berlin plant due to military actions and security concerns in the Red Sea. There’s also news that most of the production at the Berlin plant will be on hold temporarily. All these issues are making the current situation tough for Tesla.
Bottomline
Looking ahead, Tesla anticipates a potentially slower vehicle volume growth rate in 2024, attributed to the focus on launching the next-generation vehicle at Gigafactory Texas. The company acknowledges being between two significant growth phases, emphasizing global expansion for existing vehicle platforms and the anticipated initiation of the next-generation vehicle platform’s global expansion.
Despite Elon Musk’s positive outlook for 2024, the lack of specifics regarding Tesla’s pricing strategy, profit margin expectations, and concrete details on key projects has contributed to a considerable decrease in Wall Street’s profit expectations. Therefore, Elon Musk’s lack of information sharing is prompting a shift in sentiment among Tesla investors.
The world’s richest person, who somehow managed to gain more wealth than anyone in 2023, now finds himself in the precarious position of figuring out how to afford rent with a slightly less astronomical fortune. After all, we wouldn’t want the world’s richest person to struggle too much, now would we? Oh, the woes of billionaires – a tragedy in every dollar sign.
