Whether you’re a fan or not, Elon Musk eating a slice of humble pie will no doubt come as a shock to all. Musk had had high expectations to break into the Asian market with Tesla cars—“had” being the operative word. Unfortunately, it appears that he’s folding before the battle even begins, or maybe the battle was over before it ever really started. Tesla had promised significant sales growth before the year turned, promises it’s already taking back as the year gets underway. The share market has not reacted with equanimity to the take-back either, and shares dropped by 7.5% in premarket trade the day after slowing sales growths were announced in the third week of January. Coupled with last year’s product recall, 2024 is already shaping up to be more than a little stormy.
At present, Tesla reports an adjusted earnings rate of 71 cents per share. This is just slightly below the 74 cents promised by market analysts, as reported by Refinitiv. This is the second consecutive quarter that Tesla has fallen short of earning forecasts. 2023’s last quarter saw the company bringing in $25.2 billion in revenue, a rise of 3% compared to 2022.
BYD’s European market entry and Tesla’s challenges
Tesla has been trying its level best to compete with China by slashing its prices to match their more affordable ones. This helped raise Tesla’s deliveries by 38% in 2023. This might sound significant, and yet it somehow pales in comparison with the average of 50% it had promised. The promise of 50% growth in sales had been a key factor in driving shareholder support for Tesla, ensuring that it was valued the highest in the world in the product category. This was despite the fact that the company was responsible for the fewest deliveries of actual vehicles when compared to other giants in the market. Tesla also lost its position as the top dog in the EV market to Chinese company BYD just last sales quarter. Ironically enough, BYD too is backed by an American businessman, “the Oracle of Omaha”, Warren Buffet. With Buffet’s support, BYD is now on its way to penetrating the European market in a big way. In December, the company announced its plans to build a manufacturing and production facility in Hungary. If it follows through, it will be BYD’s first production plant for passenger cars in Europe.
BYD’s expansion to other regions
As mentioned, BYD sold more electric cars than Tesla last quarter, and in addition to looking to expand in the European market, is also seeking opportunities in the Middle East and Southeast Asia. Other Chinese automobile makers are not far behind. The aggressive growth in the Asian automobile industry is likely something that Musk was well aware of even when he was rebutting claims that Tesla could ever be overtaken. It was last year that he suggested that a Chinese company would likely be a top contender for the EV market behind Tesla, suggesting that “if I were to guess…probably some company out of China is the most likely to be second to Tesla.” For its part, BYD provides affordability and variety, while Tesla opts for fewer designs and premium prices (with premium extras of course). Tesla is struggling to keep up with bigger and bigger price slashes. These slashes are in turn eating into Tesla’s profitability, causing further concern among shareholders.
Musk’s take on BYD
Musk is finally acknowledging BYD as a legitimate competitor, despite his earlier scoffing. His consensus now, conveyed in a call to market analysts in January is that Chinese carmakers are “the most competitive car companies in the world” and will enjoy “significant success outside of China depending on what kind of tariffs or trade barriers are established”. “Frankly, I think if there are no trade barriers established, they will pretty much demolish most other car companies in the world,” he said. Despite this veiled request for state intervention to protect Tesla’s business endeavours, Musk also assures investors and the public alike that Tesla’s slowing growth is merely due to the company’s resources being devoted to the production of the long-anticipated Cybertruck. The delay in launching the Cybertruck commercially had been allegedly due to its manufacturing complexity. This justification was provided about three months ago, with the added qualification that Tesla anticipated the Cybertruck to be in circulation for well over a year before the company saw any profits on it.
Whether in response to Musk’s calls for control or not, the European Union is already stepping in to investigate the situation. At present, the European Commission, which acts as the executive arm of the Union, is investigating the subsidies that BYD has so far enjoyed—albeit under the guise of investigating “all electric-car makers” in China. This inquiry could very well end with the Commission imposing higher import tariffs on the Chinese company. Musk’s grudging praise of the Chinese company’s capabilities has also reached their subject’s ears. Asked for comment on his statements, the Chinese Foreign Ministry simply stated that there weren’t any, and just reiterated the country’s commitment to “maintaining a fair, just, and open business environment”. President Biden has also expressed his disapproval of China dominating the EV market through its natural capacity of scale, insisting that he “won’t let that happen”. EVs are also shaping up to be a hot topic for the upcoming presidential election in the US.
Where does Trump stand?
45th President of the United States Donald Trump too has much to say on the subject. Trump is currently one of the key names being considered as the Republican nominee for the election. Speaking on the future of the US economy under his possible tenure, Trump has been vocal in his assurances that he would put his full force behind increasing import tariffs. Chief among his election promises is a call for a universal tariff of 10% on all imports into the country, as well as the revocation of the most-favoured-nation trading status that China currently enjoys. These bureaucratic interventions, however, will not be sufficient to contain Chinese EV makers’ assault on Western electric car-makers like Tesla. Only state-level policies that stall China’s entry into local markets can buy their Western colleagues enough time to build their own supply and distribution chains to withstand when Chinese vehicles inevitably appear on the scene.