Well, you must have heard. Elon Musk recently became the first person in history lost more than $200 billion. Previously, the record was held by Masayoshi Son, the head of SoftBank, who lost $59 billion in 2000. In third place is the legendary Eike Batista, which in 2012-2013. managed to lose $30 billion and become bankrupt. And then he tried to get out of this situation and ended up in prison for 30 years. From the seventh richest man on the planet to a penniless prisoner.
The cause of the problem is essentially the same. People’s confidence that Tesla is the future of electric vehicles is increasingly in doubt. Capitalization of the company for a little over a year fell from $1.23 trillion to $385 billion, and now continues to fall.
From $380 to $143 in just one year
This crisis is almost entirely Musk’s own creation. He sold a sizable amount of his Tesla shares to buy Twitter at an above-market price, and was caught up in a string of scandals. While his auto company is suffering from increased competition in the electric vehicle market, shortages of raw materials and chips, as well as production delays and missed deadlines. Cybertruck was originally supposed to be released at the end of 2021, more than two years ago. Meanwhile, Musk is busy with a new toy: he recently declaredthat “will sleep in the Twitter office in San Francisco until the organization is fixed.”
Competitors don’t sleep
While Musk sleeps in the Twitter office, Ford, Kia, Chevrolet and Hyundai are starting to undermine Tesla’s position in the electric car market. Even in the US, where Tesla used to have almost 100% of the market.
For example, the Ford Mustang Mach-E costs half the price of the Tesla Model S, starting at $47,000, and $6,000 cheaper than the Tesla Model Y. It is said to handle better, have a longer range and more aggressive design. Now Ford is building several large plants for the production of electric vehicles and batteries for them, investing $ 11.4 billion in this. And they have already won several percent of the market for themselves.
Ford Mustang Mach-E
By data S&P Global, Tesla still holds a “majority stake.” In 2022, it accounted for 65% of new electric vehicle registrations in the US. But this is much less than 79% in 2020. The competition is growing, especially from some of the cheaper models. In second place among electric vehicles is now Ford with 7% of registrations, followed by Kia, Chevrolet and Hyundai.
S&P predicts that by 2025 Tesla will have only 20% of the market. It looks almost fantastic: where will 45% go in three years? But the fact is that large companies that have invested in electric vehicles will start launching production lines right now. They may not have the Tesla brand, but they also have an advantage: their cars are cheaper. By 2025, Tesla’s lineup will basically remain the same as it is today: four or five models with similar styling. While the proposals will become much larger. And people will look for electric cars to their liking.
S&P analysts expect the brand’s sales to continue growing at 10-20% a year. But its market share will still decrease several times. In addition to Tesla, General Motors, Ford, Toyota and Stellantis (Chrysler + Citroën + Jeep + Fiat) will be in the top.
There are signs that Musk himself may be accelerating Tesla’s downfall. Thousands of his former fans are already starting to abandon his cars due to the fact that he now posts far-right memes, unbans Republicans on Twitter and discusses conspiracy theories. This is as far as possible from the image of the “IT billionaire” that he supported before. What not everyone likes.
For example, Musk’s former fanboy Leo KoGuan, who owns $2.7 billion in Tesla shares (the company’s third-largest private shareholder after Musk himself and Oracle’s Larry Ellison), is not enthusiastic about this. The other day, he accused Musk of a special game to reduce the value of the company’s shares. Like, he kills Tesla and deliberately ousts its shareholders, forcing them to sell such an illiquid asset. What if not a theory?
Elon Musk presents Tesla Model 3 in 2017
There are also concerns about weakening demand for Tesla in China, the company’s second largest market. Due to the slowdown in the economy of the Middle Kingdom and the constant lockdowns, car sales there have generally fallen sharply. In order to somehow support demand, the company has already reduced the prices of its cars in China twice this month. But analysts say Musk needs to do more to somehow stabilize the situation. Otherwise, the value of the company’s shares will definitely continue to fall.
Tesla, of course, still has some advantages over the competition. Analysts at S&P Global Mobility, for example, point out that it has four factories in different parts of the world, while many competitors are still expanding their capacities. And Elon Musk says that in the near future he will introduce the cheapest model of the company. This should help the brand to strengthen its position in the lower segment of the market, with which it has the worst situation.
But many others are moving away from Musk. Or trying to express their position in this way, or simply because now the competition has become much more serious. For example, one in ten Tesla Model 3 buyers in the US have now switched to the South Korean Kia EV6 for $49,000. Although a less “elite” brand, the car is larger than the Model 3, and the set includes a lot of standard features that Tesla had to pay for.
Kia recently announced that it would open up electric vehicle production in the US in a few years. This is a very profitable business, and they will do anything to get a large share in it. Their country director says that “Customers who buy our EV6 are new to the brand. But they have the highest income among all the clients we have dealt with. They are younger and better educated. They have long term prospects. The launch of electric vehicles has brought a huge change for Kia, a change for the better.”
General Motors, America’s top automaker, recently unveiled a new Wuling Bingo electric car at a record low price of $11,200 that will be built in China and then shipped to the US and Europe. According to them, the global market for electric vehicles has grown by 70% over the past year, to 7.8 million units per year, and this is already more than 10% of all cars. Outside of Europe, the most “electric” country is China, where sales of electric vehicles already account for 18% of the market. In general, the leaders here are Norway, Sweden and the Netherlands.
Ford’s chief electric vehicle executive, Justin Palmer, also says new cars are going like hot cakes. According to him, the company has not even advertised its Mustang Mach-E model, but at the same time, demand for it already exceeds supply by several times. This has resulted in long waiting times for some buyers, which Ford is now trying to reduce by ramping up EV production to 270,000 a year. All of these buyers would have bought a Tesla before.
What to do with it
To stop losing potential customers, in early 2023, Tesla suddenly greatly reduced prices for their cars in the US and Europe. Information about the price cut appeared on the Tesla website on January 12 without any announcement from the company’s management or its CEO, Elon Musk.
The base Tesla Model 3 is down $3,000 to $43,990. And the Tesla Model Y is down to $52,990 from $65,990 a day earlier.
Tesla Model Y
Even more surprising (if you don’t know the background), the price cuts come after Tesla has been jacking up the prices of its cars for years amid overwhelming demand. And the waiting time for certain of its models a few years ago increased to months or even years.
For customers, the first signs that the situation is definitely changing and the company is headed for a recession were a significant reduction in waiting times in November 2022, as well as sudden “Christmas” discounts on some new models in December 2022. All this was also an attempt by Tesla to increase sales. But expectedthat the company will still be forced to suspend hiring of new employees and lay off several thousand workers in the first quarter of 2023. This will be the first major round of layoffs in Tesla history.
What will happen
People used to think that Elon Musk was a genius who would ruin everything. And they believed that Tesla would become even more successful in the future. But after the uniquely shameful story of the purchase of Twitter, this belief has been greatly shaken. The public watches on the news as Musk fires all the employees, then begs them to come back. Either he sells a blue tick for $20, allowing scammers of all stripes to cash in on simpletons, or he admits that it was a bad idea. In just a couple of months under him, the company was much closer to bankruptcy than at any time in its history. And there’s no reason the same thing can’t happen to Tesla. Especially if Musk decides that another brilliant idea has come to his mind, or simply does not want to troll someone again.
Be that as it may, it is already clear that the company will not become a monopolist in the electric car market. And this was very much hoped for. Tesla cost several times more expensive than all other car manufacturers combined. Now the market is slowly waking up, and is beginning to understand that the company’s capitalization is 20 times higher than that of Volkswagen, while Volkswagen sells 8 times more cars (10.3 million versus 1.3 million) – this is a bit strange.
Unless something radical happens next, all experts say that Tesla will continue to lose its market share, and, accordingly, capitalization. Losing more than $200 billion in wealth is far from the limit.