For years electric car pioneer Tesla enjoyed greater acclaim than almost any other manufacturer in the industry. A superior range, its own gigafactories and unrivalled software were just some of the reasons for its popularity. These attributes delivered not only exorbitant growth, but also – finally – the long-awaited profits. Despite the coronavirus pandemic, in 2020 the US carmaker owned by multibillionaire Elon Musk posted a year-on-year profit for the very first time. Tesla also left the rest of the industry trailing in its wake with an operating return on sales of almost 17%. The applause of stock market players was impossible to ignore or overlook. The share price raced from around USD 30 at the start of 2020 to over USD 400 by the end of 2021.
Things have not gone quite to plan since the S&P 500 stock reached its record high in November 2021, however. The road became bumpier, causing high volatility in the price of the share. Fluctuating enormously, it had fallen to just under USD 100 by the start of 2023, before a significant countermovement set in. This came to an end at USD 300, though, and was followed by another plunge. The skid marks on the chart reflect huge hits to the company’s once exceptional position. Greater competition on the one side and market weakness on the other mean that the luxury cars from the USA are no longer so easy to sell.
Looking closer, Tesla seems to be stuck in roadworks at the moment. First and foremost is the decline in sales growth: having been as high as 88% in 2021, the rate of increase slumped to 40% in 2022 before dropping to “just” 38% last year. To counteract this weakness, Tesla unleashed a price war. The group began by lowering the prices of its electric vehicles in China for the first time in the autumn of 2022, then followed this up with a raft of price discounts in all regions last year. The Model Y, for instance, the most popular version in the USA, ended up costing around 26% less than previously. Tesla turned the price screw again at the start of 2024. In Germany a number of models became cheaper when the government subsidies came to an end. This battle for discounts cannot, of course, fail to have an impact on returns. While Musk may keep repeating the mantra that he is willing to accept a decline in profitability in order to achieve growth, investors looking at the share price have a different opinion.
The Tesla share again reacted to the latest figures with hefty discounts. According to provisional calculations, the price drops resulted in the gross profit margin shrinking to 17.6% in the three months to December. This compares with a return of 23.8% for the same period the previous year and 17.9% in the previous quarter. Tesla thus failed to meet expectations, with analysts having predicted 18.3%. The group also disappointed on the sales side. While revenue climbed 3% to reach USDbn 25.2, this was not only below estimates but also represented the lowest growth in more than 3 years. The incentives to buy were at least sufficient to ensure that Tesla hit its target of delivering 1.8 million vehicles in the year as a whole.
Source: Tesla