April 12, 2024

Tesla’s sales decline is a sign that its grip on the EV market is waning

Tesla appeared to lose control of the market it effectively created after reporting a stunning drop in quarterly revenue on Tuesday, raising new questions about Elon Musk’s leadership of the company.

The sales decline caught investors by surprise as rivals such as China’s BYD and South Korea’s Kia and Hyundai reported increases in electric vehicle sales, suggesting that slower overall demand for battery-powered models was not the only explanation for Tesla’s troubles .

Tesla pioneered the electric vehicle market with its Model 3 sedan and Model Y SUV, which proved that battery-powered cars could be attractive, practical and profitable. The cars revolutionized the automotive industry and forced established automakers to develop their own electric models.

But the market is evolving in ways that may not favor Tesla. Unlike the early adopters who fueled Tesla’s rise, mainstream buyers may be put off by the vehicles’ unconventional design, including the minimalist interior and lack of buttons and switches. Nearly all functions in Tesla vehicles are controlled from a large screen on the dashboard.

The system “makes it very distracting to adjust almost anything in the vehicle while driving,” Consumer Reports wrote Tuesday in a review of a new version of the Model 3.

Tesla, which sells cars online and doesn’t have many showrooms, is often the target of complaints about poor service. That could provide an advantage to established automakers, such as Ford Motor and General Motors, which have extensive dealer networks and are ramping up production of electric vehicles.

Tesla seems unable to respond to these challenges. It has taken a long time to follow up on his initial success with new models, and Mr Musk seems disengaged. He did not comment Tuesday on sales figures on X, the social media platform he owns and where he posts frequently. Instead, he threw barbs at Walt Disney Company executives, whom he accused of being “woke.” Such comments have made him a hero to conservatives but could keep liberals, who are more likely to buy electric cars, away from Tesla.

Tesla said it delivered 387,000 cars worldwide in the first quarter, down 8.5 percent from 423,000 in the same period last year. This marked the first time Tesla’s quarterly revenue fell year-over-year since a modest decline at the start of the pandemic in 2020. The sales figures were also significantly lower than estimates from Wall Street analysts who had expected a modest increase.

“Tesla can’t stand still,” Ben Rose, president of Battle Road Research, said in an email. “Chinese electric cars are already gaining a foothold in Europe, and it is unclear how long they will be banned from entering the US”

More affordable cars would help Tesla appeal to a broader spectrum of buyers, Rose said.

To be fair, some of the sales decline may have been the result of production issues beyond the company’s control, including a fire at a Tesla factory near Berlin that was the result of an arson attack.

And the company’s cars still have many fans. While examining the Model 3’s controls, Consumer Reports said the latest version offered better ride than its predecessor and had improved handling.

But investors are clearly alarmed. Shares of Tesla have fallen more than 30 percent this year — including a 5 percent drop on Tuesday — on concerns that the company has lost momentum.

In China, Tesla faces BYD and dozens of other rivals with ambitions to expand globally. In Europe, established automakers such as Volkswagen and BMW have introduced more attractive battery-powered models. And in the United States, electric car sales are not growing as quickly as a year ago, with many buyers opting instead for hybrid models that combine a gasoline engine with batteries and electric motors.

Tesla rivals continue to report sales increases. BYD said Tuesday it has sold about 300,000 electric vehicles, up 13 percent from a year earlier. The company also sold 324,000 plug-in hybrid vehicles in the first quarter, an increase of 15 percent.

BYD and other Chinese automakers have been quick to introduce new models, often undercutting Tesla on price. These companies are also exporting more and more cars to Europe, Southeast Asia and Latin America.

South Korea-based Kia said Tuesday that sales of electric vehicles in the United States more than doubled in the first three months of the year from a year earlier after it introduced a new large SUV, the EV9. Kia’s sister company Hyundai said it sold more than 10,000 electric cars in the United States in the first quarter, an increase of 75 percent.

Toyota, the world’s largest automaker, doesn’t sell many fully electric vehicles. But the company said U.S. sales of electrified vehicles, a category made up largely of hybrids, under the Toyota and Lexus brands rose 74 percent in the first quarter.

Tesla pioneered mass-market electric cars, but its range is aging. The company’s only new model since 2020 is the Cybertruck, a futuristic pickup that came to market in limited numbers last year. The cheapest version Tesla says it can deliver this year starts at around $80,000, making it unaffordable for most car buyers.

Rivian, whose R1 pickup competes with the Cybertruck, said sales, including those of the truck and the two other models, rose 70 percent in the quarter to 13,600 vehicles.

Tesla is working on an electric car that will cost around $25,000, but the model is not expected to come onto the market in large numbers until 2026. Meanwhile, Tesla remains dependent on the Model Y and Model 3 for the majority of its sales.

The company has repeatedly cut prices, but analysts say the strategy has cut profits without doing enough to boost sales. The company recently modestly increased the prices of some cars in the United States and China. The Model Y starts at nearly $45,000 before federal and state tax credits, following a $1,000 increase announced this week.

The quarterly sales figure shows that Tesla executives “need a real sales strategy and cannot rely solely on price cuts,” Gary Black, managing partner of the Future Fund, an investment firm, wrote on X.

Tesla CEO Mr. Musk has given no clear indication of how the company plans to regain momentum. At the same time, his polarizing statements and support of right-wing conspiracy theories have alienated many of the left-wing customers who are most likely to buy electric cars.

Los Angeles resident Raphaelle Cassens gave up her leased Tesla Model Y last year and replaced it with a leased electric BMW i4. Mr. Musk was one of the reasons she switched, she said.

“To be honest, I don’t like him at all as an individual,” said Ms. Cassens, who is a registered Democrat but describes herself as nonpartisan. She also said she received poor service from the company. “The attitude of the company is absolutely reflective of the owner,” Ms Cassens added.

At least one other major automaker is also struggling with electric vehicle sales. GM reported Tuesday that U.S. sales fell 1.5 percent in the first quarter, largely because deliveries of battery-powered cars fell by about a fifth to about 16,000 vehicles.

The decline in battery-powered vehicle sales was the result of a sharp decline in sales of the Chevrolet Bolt, which GM discontinued at the end of 2023. Sales of other electric models using GM’s latest battery technology rose, but not enough to make up for it. for the loss of the Bolt, one of the most affordable electric cars in the United States.

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