Tesla-Chef Elon Musk.
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Challenges that Tesla dodged last year could catch up with the company in 2024.
Morgan Stanley expects Tesla to provide a conservative full-year outlook when the company reports its results this week.
The electric vehicle market faces slower growth and less optimism.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
The coming year will be a challenge for Tesla. Tesla CEO Elon Musk will face a number of obstacles in 2024 as the global electric car market shows signs of slowing, according to Morgan Stanley analyst Adam Jonas. He expects Musk to give a cautious outlook for the coming year, even if Tesla achieved impressive results in 2023.
Tesla will report fourth-quarter and year-end results on Wednesday evening, and Musk and other executives will face questions about their prospects for the coming year.
In a note to clients on Monday previewing the challenges ahead, Jonas offered seven reasons why Musk should be concerned heading into 2024:
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1. Price reductions
Tesla was able to gain a lead over its rivals in 2023 by driving down average electric car prices with a series of price cuts – made possible by Tesla’s industry-leading profit margins. At the start of the fourth quarter of 2023, Tesla’s profit margins were still higher than those of its competitors, but the gap was narrowing.
Jonas points to the German Tesla price cuts as a warning sign for the coming year. The price cuts came days after Tesla announced production cuts in Berlin, a move that typically has a positive impact on pricing.
2. Dwindling EV incentives
For Tesla, government incentive programs for potential buyers, especially in the US, are quickly running out. Earlier this month, the list of vehicles eligible for tax credits of up to $7,500 (€6,900) shrank to just 13 vehicles, only three of which are Tesla models.
Jonas and his team, who remain bullish on Tesla shares with a new price target of $345 (318 euros), expect more setbacks like this in other countries as governments review their budgets in 2024.
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3. Uncertain electric car residual values
The mix of rebates and government incentives that have helped Tesla maintain its lead in the electric car market this year will likely have a longer-term negative impact on the brand’s pricing.
“The volatility of residual value harms the value proposition for consumers and creates uncertainty for leasing partners who do not want to bear the risk,” Jonas wrote.
Electric cars already have some of the worst resale values in the automotive industry, although Tesla leads the way in this area with the residual value of the Model 3.
4. Electric cars are losing favor with fleet buyers
Tesla has recently been a prominent victim of fleet buyers turning away from electric vehicle commitments. Car rental company Hertz, which initially made a splash with its partnership with Tesla, said earlier this month that it would sell a third of its global EV fleet and replace those vehicles with gas-powered cars.
That spells trouble for Tesla’s sales, as fleet sales are often used as a dumping ground for vehicles with more supply than demand.
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5. Political risks in the 2024 presidential election
Electric cars have enjoyed four years of government support and incentives under the Biden administration, which initially strengthened the industry’s commitment to battery-powered cars. However, the looming election between Biden and former President Donald Trump has investors concerned about future support for Biden’s clean energy stimulus.
“A possible withdrawal of incentives for electric cars would be an obstacle to the spread of electric cars,” wrote Jonas.
6. Production capacities in China
An imbalance between supply and demand for electric vehicles appears to be emerging in China this year after a final spurt in 2023 and the expiration of some key local stimulus measures, Jonas said.
This imbalance is already evident on a smaller scale in the US, where several executives have recently scaled back their electric vehicle ambitions.
7. Slowed EV exports from China
In the context of China’s emerging overcapacity problem, the Chinese government announced this month that it would curb exports of electric cars and crack down on “blind” production of electric cars.
Anecdotally, Jonas also pointed to rumors that customers are returning to gasoline-powered cars and moving away from electric cars, while interested electric car buyers are showing more interest in used electric cars.
Read the original article in English here.