Tesla is clearly struggling but what are they doing about it?

Tesla is one of the magnificent seven companies listed among the other six names Apple, Amazon, Meta, Google, Nvidia and Microsoft. The seven companies are named ‘magnificent’ given their growth potential and market dominance. But among the other players that delivered a double-digit growth in 2023, Tesla reported a 40% decline in profits. The company’s narrative of rapid growth does not hold good anymore. Tesla has been featuring in the news every day for some time now, and not for good reasons. Tesla is facing multiple problems and is trying to navigate through the storm. This article attempts to cover the following aspects of the Tesla story:

1.       What are the struggles faced by Tesla currently?

2.       What is Tesla doing about its struggles and whether it is sufficient

Happy reading! 😊

What are the struggles faced by Tesla?

·         Competition from the rivals in the EV market: There is increased competition from domestic players across geographies.

·         Mass layoffs: The company is facing declining sales and hence has planned a layoff that would lead to 10% contraction of the company’s workforce.

·         Reduction in prices: During the third week of April this year, Tesla reduced prices for most of its variants across geographies US, Europe and China. It is important to note that Tesla’s two main markets are US and China.

·         Stock price slump: Tesla’s stock is down more than 40% this year.

·         Disappointing Q1 numbers: Tesla reported a 9% drop in sales YoY, steepest decline since 2012. Profit was down 55% YoY.

·         Elon Musk’s compensation in question: A $56 bn compensation package for Tesla’s CEO Elon Musk (performance based as of 2018) was voided by the Delaware court earlier this year; shareholders will be voting on this soon. Shareholders will also be voting on moving the state of incorporation to Texas from Delaware (to reduce costs). Annual meeting will convene on June 13th to discuss the above.

Given all the bad things currently faced by Tesla, where are the Tesla investors focusing on for the near term?

On Tesla’s advanced AI and robotaxis’ bet.

Because if an investor decides to focus on the fully self-driven segment; one has to keep in mind that fully self-driven segment is still a far-fetched dream. Experts opine that we are still at least a decade away from autonomous driving if at all it becomes true. Regulatory and infrastructure-related concerns should also be considered. On the other hand, if an investor decides to focus on the EV narrative of Tesla, one has to keep in mind that Tesla will very likely face a lot of competition from domestic automakers in the electric vehicles segment. Given this competition, Tesla could be forced to cut prices that will affect its industry-leading profits. We are already seeing this starting to happen.

Then what about advanced AI and robotaxis bet?

One needs to understand that Tesla is not a pioneer in robotaxis.

There are already players in the robotaxi segment- Waymo, Baidu and AutoX to name a few. These companies operate in the following geographies: Waymo in North America, Baidu and AutoX in China. It goes without saying that Baidu and AutoX will have better support from the Chinese government and regulators compared to the US player Tesla. What Tesla is trying to do is to develop robotaxis without the LiDAR technology that the other players use because LiDAR is expensive, bulky and Musk thinks the number of appendages that come with a car should be minimal.

So, among the advanced AI and robotaxis bets, this clears it up that robotaxis is not the way to go for near future. Advanced AI for me still seems like too early to comment.

Where do you think the advanced AI bet will take Tesla in the near term?

Feel free to share any feedback 😊