It Is The Beginning Of The End For Tesla
The tell-tale hints are there that Tesla is on a slippery slope.
Tesla not only sowed the seeds for the EV movement but has also been the industry leader for well over a decade. Only now is anyone else even able to get close to them in terms of driving range, charge speeds, performance, or price. But recent changes in China and some new faltering share prices may suggest that Tesla’s days as top dog are numbered, and soon they may become an also-ran in the EV race. So, is Tesla about to slip away? Or can Musk rescue this situation?
This all started when Tesla cut the Model 3 and Y prices in China by $2,000 and $4,000, respectively. This might sound like a good thing and a decision that would barely impact Tesla as a company, but when you dig a little deeper, it doesn’t look good.
A little while ago, Tesla had to increase the Model 3 and Y prices in China to account for increased material costs. These cuts have brought these prices back down to pre-material inflation levels. But the cost of materials is still really high (particularly for lithium and computer chips).
Back in 2021, Tesla only sold 150,000 Model 3’s in China, so this price cut will likely only take a few hundred thousand dollars off their revenue, which is minuscule for a company like Tesla. However, the material costs of building a Tesla are likely higher today than they were in 2020, so the actual loss of revenue could be far greater.
A fear of how this loss of revenue could affect Tesla rippled through the stock market and caused Tesla stock to plummet 7%. This begs the question, why has Tesla dropped the price of these vehicles? Well, it is all to do with new rivals and missed targets.
You see, while Tesla is miles in front of any Western EV company, Chinese EVs are already besting them.
Take the Zeekr 001 (which I covered in detail here). It has a beautiful, well-built interior, plenty of trunk space, a range of 435 miles, goes from 0–60 mph in only 3.8 seconds, and charges at 360 kW (100 kW faster than any Tesla). All for the dirt cheap price of $48,000! Meanwhile, a Tesla Model Y Long Range (which is of similar spec and size to the 001) costs nearly $60,000, has a range of 337 miles, goes from 0–60 mph in five seconds, and has a charge rate of 250 kW.
Why would you choose the Tesla over the Zeekr? You wouldn’t! And so, plenty of would-be Chinese Tesla owners have been tempted elsewhere.
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It isn’t just Zeekr. Several other Chinese manufacturers are starting to offer cars in the Chinese market with significantly better stats than Tesla for less money. As such, Tesla deliveries and revenue have slumped behind where they were predicted to be. The only thing Musk can do to boost sales is to drop the price of their models and hope this brings customers back.
Right now, this is only happening in China, as that is where these dirt-cheap yet high-quality EVs are being sold. But over the next few years, they will be offered in the US, Canada, EU, and Australian markets. So, Tesla may soon find itself having to cut the price of its EV worldwide, which would slash its profits and cause its stock price to tumble.
This would be an utter disaster for Musk. Let me explain.
Musk has several massive projects that could cause Tesla cars to become significantly cheaper: the 4680 battery and his upcoming lithium mine.
The 4680 battery promises to cut the price per kWh by 56%. However, this requires utilising totally new cell technology, such as a dry coating and silicone anodes. Tesla is really struggling to manufacture both of those at scale. This is why the current 4680 batteries being installed into Model Y’s are just giant versions of their old batteries (read more here), and as such, don’t have these insane cost savings. Tesla will need a lot of investment to get proper 4680 production up to scale, which will require either high profits or a high stock price to raise funds against.
The same is true for their lithium mine. To try and fight the rising cost of materials, Tesla is currently trying to build its own lithium mine, which will allow its batteries to become even cheaper (read more here). But yet again, this will require a huge amount of investment to get up and running, which will either require massive profits or high stock prices to help raise finance.
So, Tesla is currently locked in a race. It needs to finish these projects and get them fully operational before what happened in China is repeated worldwide. The question has to be asked: is Tesla in deep trouble?
Well, possibly not. You see, Tesla has insane profit margins. Tesla makes about $24,000 profit per Model Y sold, or about a 40% margin (read more here). So, if Tesla needed to cut the price of their vehicles even more, they could, and the business would happily stay afloat.
While such a move would likely end any 4680 development or lithium mine construction and tank their share prices, it would, at the very least, keep Tesla going. Or, this would be the case if it weren’t for Tesla’s whopping $18 billion in cash reserves, which should be enough to pay for both the 4680 development and lithium mine.
But would this be enough to keep their industry lead? I don’t think so. Cars like the Zeekr are already lined up to get upgraded batteries that charge at 600 kW and have a range of 620+ miles. These upgrades will put them far ahead of Tesla, even with fully deployed 4680 batteries and their own lithium supply. Even if Tesla can pull off these projects, its cars will still struggle against the upcoming competition.
So, it seems likely that Tesla will soon find itself in the middle of the EV race, or possibly worse.
However, let’s not forget who is at the helm of Tesla. Musk has an uncanny ability to make businesses soar when they should crash. So if anyone can see Tesla through this upcoming storm, it’s him. I just can’t help feeling like the writing is already on the wall and the days of Tesla pioneering this revolutionary industry are over. Only time will tell.
July 12, 2023- -
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