Multiple negative factors are pressing down, can Tesla still "turn the tide"?

According to the Zhitong Finance and Economics APP, Tesla (TSLA.US) has become one of the most valuable companies in the world, as the company has proven that selling electric vehicles in large quantities can be profitable. However, for most of 2024, investors have questioned Tesla's prospects: the stock fell 35% during the year due to declining sales, confusing product strategy signals, and concerns that its aging product line is falling behind.

Tesla CEO Elon Musk seems to be more focused on the prospect of autonomous driving robot taxis rather than developing a cheaper electric vehicle to compete head-on with rivals. Although Tesla's driver assistance software is called "Full Self-Driving," it still requires active human monitoring.

Musk announced during the April 23 earnings call that Tesla is becoming an artificial intelligence company, with autonomous driving being a top priority. "If someone doesn't believe Tesla will solve the autonomous driving problem, I don't think they should be investors in this company," Musk said. "We will do it, and we have already done it."

At the same time, Tesla assured investors that it is accelerating plans to introduce cheaper models. Musk stated that these new vehicles will be produced on Tesla's current production lines and may be ready by early 2025.

Tesla still faces many challenges, including a high-interest rate environment that is causing many consumers to wait and intensifying competition.

Weakening Demand

Initially, electric car buyers were mainly high-income tech enthusiasts who saw electric cars as their second vehicle. Industry experts say that these buyers are now mostly satisfied, so demand growth is slowing: according to UBS forecasts, after a 60% increase in US electric vehicle sales in 2022 and a 47% increase in 2023, it is expected to only grow by 11% this year.

Tesla's first-quarter deliveries actually decreased by 8.5% compared to the same period last year, falling short of expectations. "The adoption of electric vehicles globally is under pressure, with many other automakers exiting electric vehicles and turning to plug-in hybrid vehicles. We believe this is not the right strategy, as electric vehicles will ultimately dominate the market," Musk said during the first-quarter earnings call.

Year-over-year decline in Tesla's deliveries

For investors, growth has always been at the core of Tesla's value proposition: according to DataTrek's analysis, about 79% of the company's current valuation is based on its future earnings potential.

One major question facing investors this year is where future growth will come from. Tesla's latest model, the Cybertruck, was recalled on April 19 to fix issues with the accelerator pedal, and this model has not yet entered the market in large numbersConcerns about growth have made Tesla one of the worst-performing companies in the S&P 500 this year. However, even after the stock price decline, Tesla remains the most expensive stock among the "Big Seven" tech companies when measured by price-to-earnings ratio.

Tesla's believers argue that the company deserves a premium because the future of the automotive industry is electric vehicles, and Tesla remains the only profitable car manufacturer in the United States that exclusively produces electric vehicles. Tesla now also insists that the future is autonomous driving vehicles.

Intensifying Competition

Just as demand weakens, dozens of new electric vehicle models are challenging the U.S. market. S&P Global states that at least 51 electric vehicle models, including Tesla's Model S, X, 3, and Y, are now available for sale in the U.S., up from 32 a year ago. Industry research firm Cox Automotive predicts that by the end of 2025, there will be over 70 models entering the market.

As a result, consumers have many choices when purchasing electric vehicles, and some are growing tired of the controversial statements made by Musk on social media. Cox reports that Tesla's market share in the U.S. electric vehicle market was around 51% in the first quarter of this year, down from nearly 62% in the same period last year.

Outside of the U.S. market dominated by Chinese automakers, competition is even fiercer. About half of the globally sold electric vehicles are Chinese brands.

To cope with the increasingly intense competition, Musk has lowered Tesla's model prices multiple times. This has slowed the loss of Tesla's market share but has also had a significant impact on its profit margins.

Product Line Still Unclear

Tesla's next source of sales is expected to be a low-priced model priced at around $25,000. Musk first mentioned this car in September 2020, stating that a series of innovations Tesla is working on will allow it to produce an electric vehicle at this price in about three years. Then, in January this year, Musk also stated that Tesla's progress in developing low-cost cars is "going very well."

However, media reports in early April this year indicated that Tesla had shelved plans for the low-priced car and was prioritizing its autonomous driving taxi, causing a stir among investors. During the first-quarter earnings call, when analysts asked about the low-priced car, Musk refused to disclose any details.

Now, Tesla has announced plans to accelerate the launch of the low-priced model. Tesla stated that utilizing its existing production lines will enable it to advance this plan.

Autonomous Driving Not Yet Validated

The idea of creating an autonomous driving taxi service has been brewing at Tesla for at least 8 years. Musk is very optimistic about the progress Tesla has made and envisions the company operating millions of electric vehicles in a robot taxi fleet, a service that would mimic the services provided by ride-hailing companies like Uber.

In a letter to shareholders in the first quarter, Tesla stated: "The future is not just electric, but also autonomous." "We believe that only through leveraging the data from millions of vehicles and a massive artificial intelligence training cluster can scalable autonomous driving be achieved. We have both and are continuing to expand."

However, the company has not yet provided a feature that allows the car to be safely used without the driver's eyes on the road and hands on the steering wheel. Tesla has had to recall millions of vehicles and face multiple lawsuits related to crashes involving its driving assistance system.

The scandal-ridden Musk

For a long time, Musk and Tesla have been almost synonymous: he is the company's spokesperson and has been CEO since 2008. He has turned the startup into a money-making machine, making Tesla very popular among professional investors and a large number of retail investors. However, Musk's unusually close relationship with the board that should oversee him has attracted negative attention, from the court-rejected $56 billion compensation plan for Musk to the scandal involving drug use.

Some shareholders complain that Musk's attention has been diverted by the other five companies he operates, including SpaceX and Neuralink. They say that in 2022, he haphazardly acquired the social media company Twitter Inc. and renamed it X, causing Tesla to lose $672 billion in market value that year.