Elon Musk, the CEO of Tesla, found himself in a precarious position of appreciation when former US President Donald Trump proclaimed his intention to buy one of Tesla’s electric vehicles on March 11. On the preceding day, Trump’s trade policies and ominous economic warnings had induced a broader market panic, causing Tesla’s stock to plummet by more than 15%. Unfortunately, even this unexpected endorsement from Trump wasn’t enough to stall Tesla’s spiraling sales figures and sliding stock price.
Previously, Musk seemed to play a shrewd game of political chess by supporting Trump’s second term as president. This support paid dividends when Musk was handed the reins to the Department of Government Efficiency (DOGE), subsequently driving what Barclays refers to as the ‘Elon premium’. This newfound political influence seemed poised to deliver positive results for Tesla, with its market cap hitting an all-time high of $1.5 trillion in December.
However, the intervention of reality proved to be a double-edged sword. Musk’s rapport with Trump and his endorsement of politically polarizing causes has led to a significant backlash. Across America, people began voicing their discontent with Musk’s influential position in the administration and DOGE’s large-scale termination of public employees. Tesla’s showrooms became the unfortunate battlegrounds of these protests, witnessing instances of vandalism and even arson attacks on charging stations.
Musk’s controversial ventures extended far beyond just American shores, triggering a wave of global protests against Tesla. As a direct consequence of his actions aligning so tightly with the brand, many Tesla owners felt a sense of secondhand embarrassment, prompting a trend of anti-Musk bumper stickers in a bid for dissociation. Although it’s clear that Musk’s political alignment played a part in the company’s downturn, it alone doesn’t account for the entirety of Tesla’s woes.
Even before Musk’s controversial political stance came into the spotlight, Tesla’s sales were already on a slippery slope. The company was forced to abandon an ambitious goal of producing 20 million cars per year by 2030 and faced its first reported decrease in annual sales over an extended period— a 1% drop, down to 1.79 million vehicles. This downturn carried over into the following months, with sales continuing to deteriorate despite a generally growing EV market.
Barclays’ projections suggest a grim reality in Europe with first-quarter sales potentially dwindling by around 30%. One of the steepest falls was observed in Germany, where sales plunged by a staggering 76% year on year in February. As for their performance in the US, Barclays anticipates a stagnation in growth for the first quarter of the year.
Tesla has also been struggling in the Chinese market, with sales decreasing by nearly 14% during January and February. However, there’s an underlying problem that extends beyond mere sales figures. According to Philippe Houchois, an analyst from Jefferies, an investment bank, Tesla has transformed into what he terms a ‘reluctant carmaker’.
A large proportion of Tesla’s sales is centered around two models, namely the 3 and the Y. This lack of diversity in their product line puts them at a disadvantage against industry behemoths like Toyota, which offer a larger portfolio to cater to various market segments. In a surprising move last October, Musk chose not to reveal a more budget-friendly ‘Model 2’, instead opting to focus on autonomous taxicabs and humanoid robots.
Simultaneously, established automotive manufacturers along with fresh faces from China are upping their game in the electric vehicle realm. These challengers are cornering Tesla, further intensifying competition in the sector. The valuation of the company has strayed significantly from its fundamentals and has been more of an indicative wager on Musk’s innovative prowess across diverse industries.
Yet, this disproportionate reliance on Musk’s entrepreneurial magic for maintaining Tesla’s valuation can also be seen as a potential risk. As Musk continues to spread his efforts across various ambitious projects, the company’s trust in his ability to revolutionise every sector he dips his fingers into has begun to tremble.
Musk ambitiously claims that the development of autonomous taxis and robots would seal Tesla’s position as the ‘most valuable company in the world by a significant margin’. His fixation on these future-forward endeavors, however, leaves people questioning the company’s short-term viability and its capacity to endure these turbulent times.