A difficult start to the year for Tesla
Tesla had an exceptional year in 2023, with its stock increasing by over 100% in 12 months. However, 2024 is starting off differently. The company has lost over $94 billion in market value in the first two weeks of 2024. The reasons behind this decline are not hard to understand, as the electric vehicle manufacturer has been hit by a series of negative news: a reversal on EVs from car rental giant Hertz, a price decrease for its cars manufactured in China, and signs of rising labor costs.
This all comes amidst slowing growth in EV demand in the United States. The stock decline at the beginning of the year is the largest the company has experienced in a similar period since going public in 2010. In terms of percentage, the 12% decrease since the beginning of January is the worst since 2016, when the stock dropped 14% in the first nine trading sessions of the year.
To make matters worse, the chances of an imminent turnaround for the EV manufacturer do not look good. Tesla has aggressively lowered prices of its cars since the beginning of 2023 to stimulate demand, but this has led to a steady erosion of its once significant profit margin. Tesla’s automotive gross margin, excluding regulatory credits, dropped to 16.3% in the third quarter, down from 27.9% a year earlier. And the pressure is only increasing, as workers at Tesla’s US factories are getting wage increases.
Adding to the problems, Tesla had to reroute shipments destined for its Berlin factory due to Western military actions and security concerns in the Red Sea. Production at its factory near Berlin will be suspended from January 29th to February 11th, according to a person familiar with the matter.
Elon Musk has seen his net worth decrease by $23 billion so far this year, according to the Bloomberg Billionaires Index. Musk took the top spot on the Bloomberg wealth index last year, surpassing Bernard Arnault, but now Jeff Bezos is quickly catching up, with $179 billion compared to Musk’s $206 billion at Friday’s close. Most of Musk’s net worth comes from his 13% stake in Tesla and around 304 million exercisable stock options. He also owns about 42% of SpaceX, valued at around $53 billion, according to the Bloomberg Billionaires Index.
However, Tesla remains a key player in the electric transition. The reason is simple: it is well ahead of its potential rivals. Chinese company BYD may have surpassed Tesla in terms of units sold, but it lags behind in terms of revenue and profits. Additionally, BYD does not sell cars in the United States, where Tesla remains the market leader.
Ultimately, Tesla’s continued success will depend on its ability to overcome these obstacles, maintain its leadership in the US market, and deliver on its promises regarding autonomous vehicles. While 2024 is starting off challenging, the future of Tesla remains a closely watched topic, not only for investors but also for car enthusiasts like you.
