Tesla shares plunge after Musk warns he has run out of road for price cuts
Tesla shares tumbled nearly 11% on Thursday morning after CEO Elon Musk warned that sales growth would slow in 2024 despite price cuts that have already hurt margins and raised investor concerns at the world’s most valuable vehicle maker.
Musk said growth would be “notably lower” as Tesla focuses on a cheaper, next-generation electric vehicle (EV) to be made at its Texas factory in the second half of 2025, which is expected to spark the next boom in deliveries. But his remarks fell flat with investors, with Tesla set to lose about $70bn in market value if the losses hold.
That would push its market capitalisation loss for the month to about $200bn.
“The Tesla headlines have essentially gone from bad to worse,” said TD Cowen analysts, noting that fourth-quarter revenue and profit were also below expectations.
Michael Hewson, the chief market analyst at CMC Markets, said: “The problem for Tesla is any significant attempt to boost sales from here on will probably need to be achieved at the cost of further falls in operating margin, due to having to compete with BYD in China [and] increased competition elsewhere.”
Musk said on Wednesday that Chinese carmakers will “demolish” global rivals without trade barriers. His comments come after Warren Buffettbacked BYD — with its cheaper models and a more varied lineup — overtook Tesla as the world’s top-selling EV company last quarter, despite the US vehicle maker’s deep price cuts.
Chinese car companies are the “most competitive” and “will have significant success outside of China, depending on what kind of tariffs or trade barriers are established”, Musk said on a post-earnings call with analysts on Wednesday.
“If there are no trade barriers established, they will pretty much demolish most other car companies in the world,” he said. “They’re extremely good.”
Musk has reason to be concerned. He sparked a price war in 2023 to woo consumers hit with high borrowing costs, in turn squeezing Tesla’s margins and worrying investors.
On Wednesday, Musk warned Tesla is reaching “the natural limit of cost down” with its existing line-up.
Chinese EV makers, adept at keeping costs in check with a stable supply chain, are moving fast. With rising competition and excess capacity in China, many are now working on rapidly expanding their foreign footprint after years of state subsidies helped boost domestic sales.
“The completeness and resilience of China’s multidecade state-directed battery materials processing infrastructure build-out is biting hard,” said Ross Gregory, a partner at Melbourne-based consultant New Electric Partners.
Still, brand awareness of Chinese car companies in the US is extremely low and their reliability, durability and safety is middling, so they have a long way to go to win US market share, said Spencer Imel, a partner at consumer insights firm Langston.
“They enjoy high demand in China with innovation such as in-car technology and battery swapping,” Imel said. “That, we believe, will be an important ingredient and a differentiator in their future growth overseas.”
Musk’s comments also come as the US presidential election picks up pace. President Joe Biden has said China is determined to dominate the EV market and he “won’t let that happen”. Former president Donald Trump, the front-runner for the Republican nomination for president, has signalled that he would double down on stronger tariffs if elected, calling for a universal 10% tariff on all imports into the US.
Europe has also taken a protectionist stance.
In 2023, the European Commission launched an investigation into whether to impose punitive tariffs to protect EU producers against cheaper Chinese EV imports that it says are benefiting from state subsidies.
BRAND AWARENESS OF CHINESE CAR COMPANIES IN THE US IS EXTREMELY LOW, SO THEY HAVE A LONG WAY TO GO TO WIN MARKET SHARE