Competition from China is growing, demand for electric cars is falling, CEO Elon Musk is cheekily demanding more shares – and now the profit margin is shrinking too. The bad news for Tesla doesn’t stop.
The loss of subsidies for electric cars in several countries is affecting Tesla.
Mike Blake / Reuters
At first glance, it was positive news that Tesla CEO Elon Musk presented to investors on Wednesday. The American electric car maker’s profit doubled to $7.9 billion in the final quarter of 2023 compared to the previous year. But the reason for this was not Musk’s entrepreneurial genius or the fantastic sales figures of the new Cybertruck – rather, Tesla benefited from an accounting effect. A one-time tax credit was recorded in the fourth quarter.
In fact, Tesla’s news is not very encouraging for investors: profits are melting and the company is warning of “noticeably” slower growth this year.
Tesla’s profit margin has halved
Tesla’s story right now is one of declining profit margins. While a year ago this was a remarkable 16 percent – the highest in the entire industry – now, a year later, in the fourth quarter of 2023, it is only around half as high (8.2 percent).
Tesla produced an impressive 560,000 vehicles in the fourth quarter, “more than any other car factory in North America,” Musk cheered in a phone call with investors on Wednesday. That may be true – but in view of increasing competitive pressure, Tesla had to massively reduce the sales prices for all of these new vehicles in the USA, China and Europe.
The Chinese in particular are breathing down Tesla’s neck. The Chinese competitor BYD has just overtaken Tesla as the world‘s largest manufacturer of electric cars: In the fourth quarter, the car manufacturer from Shenzhen sold 526,000 purely battery-operated electric vehicles, more than Tesla for the first time (484,000 units). Looking ahead to the whole of 2023, Tesla was still number one, but BYD entered the league of the ten largest car manufacturers worldwide for the first time.
BYD in the top ten for the first time
Sales of cars in 2023, in millions
Most BYD vehicles are cheaper than Tesla’s. Accordingly, the American electric car manufacturer now sees itself under pressure to also reduce prices in order not to lose too much market share.
The new Cybertruck eats into profit margins
Drastically lower profit margins in the fourth quarter are just the latest in a series of bad news for Tesla that has been going on for months. A core problem is that demand for electric cars is falling, partly because numerous countries, including Germany, have recently reduced or completely eliminated their subsidies.
The company could soon face further trouble at home, in the important USA sales market: If the Republican Donald Trump wins the presidential election in November, the tax breaks for electric cars could be lost.
Problems in the supply chain are causing additional problems for Tesla. In Germany, where the Model Y is produced in Berlin, the electric car manufacturer now has to shut down almost all of its production for two weeks because some components are missing due to the war in the Middle East. In other countries, such as Sweden, the unions are using strikes to put pressure on the car manufacturer to increase wages and social benefits and sign a collective agreement. Musk has so far refused.
There are also problems with Musk’s prestige project, the Cybertruck. The futuristic-looking stainless steel electric car is Tesla’s first new passenger vehicle in more than three years. It finally came onto the market last year. But back in October, Musk warned that there were production problems. It will probably take another year, perhaps even 18 months, before the Cybertruck can contribute to the group’s sales. Until then, the expensive production of the new vehicle will also eat into the company’s profit margins.
Production of the new Cybertruck is expensive for Tesla.
Imago
In mid-January, the rental car company Hertz announced that it would sell a third of its entire fleet of electric vehicles; The 20,000 cars now for sale are primarily Teslas. The reason for this is that Tesla’s sudden price cuts have greatly reduced the resale price of the old vehicles. Hertz also announced that electric vehicles are involved in a disproportionate number of accidents, which results in expensive repairs. It’s a completely different tone than just over two years ago, when the rental car company bought an impressive 100,000 Teslas and helped the car manufacturer soar on the stock market.
Musk demands a larger share of Tesla shares
In addition, Tesla has to deal with a surprising demand from Musk. The 52-year-old, who has been co-founder and CEO of the car manufacturer since 2008, demanded last week that his share in the company be increased to 25 percent – “. . . otherwise I will build products outside of Tesla in the future.” A quarter of Tesla shares would be worth the equivalent of $80 billion.
Musk currently holds 13 percent of the shares, making him the largest shareholder. If you include his stock options, his share amounts to 20.6 percent.
When asked about this demand, Musk said on Wednesday that he was not interested in more money, but in more influence. He wants to prevent activist investors from forcing him out of the company. “I see an opportunity to make (Tesla) an AI and robotics giant with tremendous capabilities and power,” Musk said. A 25 percent stake does not give him a majority control over the company, but he can exert “a strong influence,” “and that’s what it’s all about for me.”
Tesla shares fell 5 percent in after-hours trading on Wednesday; They have lost around 16 percent since the beginning of the year.