Musk’s woes: Tesla hit refresh on its EVs but it hasn’t worked

Sales of its main product suddenly stopped growing over a year ago and are down 13% so far this year. Its last big product launch bombed. It reiterated plans for new lower-cost versions of its product as recently as three months ago, and they then didn’t materialize. The chief executive dove head-first into divisive political activities that alienated customers and then picked a fight with the US president and his party. Having promised a revolutionary new automated product for a decade, missing repeated deadlines, the company finally launched a limited, somewhat automated pilot that looks years behind the competition.

Would you pay 140 times earnings to own a sliver of that?

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Tesla Inc is in trouble. It just reported another dreadful set of electric vehicle (EV) sales numbers, once again missing a much-reduced consensus forecast. Tesla has now reported two sub-400,000 quarters in a row. The excuse given for the prior quarter’s collapse, a temporary shutdown of production lines to refresh the Model Y, was never all that convincing and these second-quarter figures discredit it utterly. 

The recent sudden departure of Omead Afshar, longtime deputy to chief executive Elon Musk, plus news that Musk will assume oversight of sales in Europe and the US signal an acute problem. As it was, Tesla was forecast to rack up a second year of falling EV sales and this latest miss likely means further cuts to 2025 estimates. 

The wrinkle is that Musk himself represents the largest part of that problem. For example, the robotaxi rollout in Austin, for all its limitations, would represent a milestone for Tesla had Musk not spent years egregiously overselling it. The Cybertruck, an utter flop that distracted Tesla from designing cheaper EVs for the mass market, is Musk’s brainchild. 

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Above all, Musk’s political exploits have damaged Tesla’s brand in key markets and installed an administration openly hostile to EVs and the subsidies propping up what’s left of Tesla’s profits.The latest sales figures confirm structural weakness across Tesla’s markets. 

The collapse in the premium segment, which comprises only about 5% of unit sales but perhaps 10-15% of automotive revenue, is particularly striking. It is all the more striking because that line-up expanded from two to three models with the release of the Cybertruck only about a year-and-a-half ago. 

Rather than boosting the segment, however, the Cybertruck’s own sales peaked early, compounding a marked slump in the Models S and X, both launched at least a decade ago. Tesla’s premium segment presence outside the US has shrivelled to almost nothing.

The bulk of the business comprises the cheaper Models 3 and Y, with the latter alone accounting for perhaps 70% of EV sales. This core of Tesla’s core business is also struggling, with the two together registering a 13.5% decline in the second quarter. Tesla built about 23,000 more of them than it sold, its fifth quarter of excess production out of the past eight—signalling a demand problem and adding a working capital headwind to cash flow.

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Refreshes of both models over the past two years have not addressed a basic truth. As with the S and X, these are old models in a fast-evolving market. Nowhere is that more evident than in China, where few care about Musk’s relationship with MAGA, but drivers do want the latest technology at an affordable price. Tesla’s sales slide there stems largely from its ageing lineup being overtaken by a range of competitors offering equal or better vehicles at lower prices. The recent release of Xiaomi Corp’s YU7 SUV epitomizes the challenge.

Tesla’s stock, characteristically, went higher on the morning of 2 July on the back of unambiguously bad numbers. The justification for such exuberance is collapsing, though. Tesla is clearly no longer primed for dominance in EVs, losing share in China, Europe and its domestic market, with Morgan Stanley estimating an 8.8% drop in Tesla’s US sales in June against a 1.7% increase for battery-run EVs overall. And this is before the impact of EV tax credits being removed by the Republican majority Musk helped elect.

In terms of automation, Chinese competitors are already offering as standard the kind of advanced driver assistance features that Tesla upsells for thousands of dollars. That leaves the US robotaxi dream—and even there, the Austin pilot isn’t so much proof of concept as a demonstration that Tesla has much to prove, relative to Musk’s rhetoric at least. 

Tesla’s buoyant stock owes everything to a persistent US-centric perception of technology leadership that cannot be found in the actual numbers. ©Bloomberg

The author is a Bloomberg Opinion columnist covering energy.