Elon Musk's Tesla Plummets US$94 Billion in Market Value
Tesla, the electric vehicle (EV) giant led by Elon Musk, is experiencing a rocky start to 2024.
The company has suffered a staggering loss of over US$94 billion in market valuation in just the first two weeks of the year.
This downturn can be attributed to a series of negative developments, including a reversal on EVs by car rental giant Hertz Global Holdings, further price cuts for Tesla cars manufactured in China, and indications of rising labor costs.
The decline in demand for EVs, particularly in the United States, is a major concern for investors. Cowen analyst Jeffrey Osborne highlighted the stagnating growth as the primary worry surrounding Tesla. The price cuts in China only exacerbate these concerns, as the EV industry appears to be engaged in a race to the bottom due to intense competition in the market.
This market downturn marks Tesla's largest loss in market capitalisation since its initial public offering in 2010. In terms of percentage, Tesla's 12% drop since the beginning of January is the worst since 2016. The company is facing additional challenges as its aggressive price-cutting strategy has eroded its once-robust profit margin. Tesla's automotive gross margin, excluding regulatory credits, fell to 16.3% in the third quarter of last year, compared to 27.9% the previous year. The pressure continues to mount as production workers at Tesla's US plants are receiving pay raises.
Ivana Delevska, Chief Investment Officer at Spear Invest, emphasised that Tesla is facing a cyclical downturn for EVs, compounded by unfavorable competitive dynamics. Price cuts and declining margins are symptomatic of these challenges. Furthermore, Tesla has encountered logistical issues, diverting shipments intended for its Berlin plant due to security concerns in the Red Sea. As a result, most production at the German facility will be suspended from January 29 to February 11.
Tesla first warned about the deceleration in EV demand during its third-quarter earnings report in October. This cautionary note was followed by downbeat forecasts from carmakers and suppliers worldwide, leading to a scaling back of expansion plans. In addition, Tesla's fourth-quarter delivery numbers, while surpassing analysts' expectations, placed the company behind China's BYD Co in global electric car sales. This reality has come as a shock to Tesla investors, as the stock was one of the top performers in the S&P 500 last year but is now among the worst performers this year.
The repercussions of this market downturn are not limited to Tesla alone. Elon Musk, the world's richest person, has seen his net worth shrink by US$23 billion in 2024, according to the Bloomberg Billionaires Index. Musk's net worth primarily stems from his 13% stake in Tesla and approximately 304 million exercisable stock options. He also owns around 42% of Space Exploration Technologies, valued at approximately US$53 billion.
Despite these challenges, Tesla remains a key player in the global transition from petrol-powered vehicles to electric ones. The company's significant lead over potential rivals is a testament to its position in the market. While China's BYD may have surpassed Tesla in terms of units sold, Tesla still holds the advantage in terms of revenue and profits. Additionally, Tesla continues to dominate the US market, where BYD does not sell its cars.
However, Tesla's past success and the high expectations it generated may be its biggest obstacle. As investors flocked to the stock, Tesla's market capitalisation soared, surpassing that of any other car company in the world. This left the company vulnerable to significant reactions to any negative news, as its shares were priced for perfection.
Many Tesla supporters argue that the company should not be compared to traditional car manufacturers. They believe that Tesla's true value lies in its potential to develop fully self-driving vehicles. However, despite promises made by Tesla over the years, experts suggest that this technology is still years, if not decades, away from becoming a reality.
The inability to deliver on these promises has impacted Tesla's valuation, as the market questions whether being just another automotive manufacturer is enough to justify its US$750 billion valuation.
Tesla has lost over US$94 billion in market valuation in the first two weeks of 2024.
Stagnating growth and price cuts in China are major concerns for investors.
Tesla's aggressive price-cutting strategy has eroded its profit margin.