Tesla, the world’s most valuable automaker, experienced a significant drop in its shares, causing a loss of $73 billion in market value. The decline came after the company warned of slowing growth in electric car sales and the threat posed by Chinese rivals. In its earnings presentation, Tesla stated that its sales growth for this year may be notably lower than the previous year due to the development of a next-generation vehicle, which is likely to be a lower-priced model. Although the company reported a 38% increase in deliveries in 2023 compared to 2022, it fell short of its target of achieving a 50% annual growth rate over several years.
Furthermore, Tesla’s financial results for the last quarter were disappointing. Adjusted earnings per share were down 40% from the previous year, and revenue, although it rose 3% to over $25 billion, fell below market forecasts. This marks the second consecutive quarter in which the company failed to meet analysts’ earnings forecasts, following a series of better-than-expected results in the past. The stock had doubled in price in 2023, but it began 2024 on a weak note, with a 16% decline before the earnings report. Currently, Tesla shares are trading at their lowest level since April of the previous year.
The decline in Tesla’s shares on Thursday was comparable to a significant one-day fall of 11.4% in late December 2022. During that time, investors were concerned about the outlook for Tesla’s sales and profitability, as well as the state of the US economy. The recent fourth-quarter earnings report also revealed that Tesla’s profits were under pressure, with the operating margin almost halving to 8.2% compared to the same period in 2022. This was partly due to increased costs related to the production of the Cybertruck pickup, which went into production at the end of 2023.
Analysts have expressed their disappointment with Tesla’s earnings call, stating that it provided minimal answers regarding the company’s shrinking margins. Dan Ives, an analyst with market research firm Wedbush, criticized the lack of a strategic and financial overview of ongoing price cuts, margin structure, and fluctuating demand. Tesla has been reducing prices for over a year in an attempt to boost sales and combat intensifying competition from Chinese rivals. Chinese automaker BYD even outsold Tesla in the final quarter of 2023, marking the first time BYD surpassed Elon Musk’s company in sales. Musk himself acknowledged the competitiveness of Chinese carmakers, stating that they are likely to have significant success outside of China and could potentially demolish most other car companies in the world if trade barriers are not established.
The rising competition from Chinese automakers has led to an anti-dumping investigation by European officials, which could result in higher tariffs on car imports from China. Dumping refers to the practice of exporting goods at prices that do not reflect their cost. Despite the disappointing earnings report, some analysts remain optimistic about Tesla’s future. Garrett Nelson, a senior equity analyst at CFRA Research, believes that the launch of Tesla’s lower-cost vehicle in the coming years will serve as a catalyst for the stock. Ben Barringer, a technology analyst at Quilter Cheviot, also shares this optimism, stating that the broader economic environment is starting to turn in Tesla’s favor, especially as interest rates are expected to decrease.
In conclusion, Tesla’s shares experienced a significant decline following warnings of slowing growth and increased competition from Chinese rivals. The company’s financial results for the last quarter fell short of expectations, leading to a decrease in market value. However, analysts believe that the launch of a lower-cost vehicle and a more favorable economic environment could potentially turn things around for Tesla in the future.
