Tesla is facing a challenging first quarter, with predictions of decreased vehicle deliveries as the effectiveness of its price reduction strategy begins to fade amidst stiffening competition and a decelerating electric vehicle market.
The automaker, once celebrated for its meteoric rise and position as the most valuable car manufacturer globally, is now navigating through a potential slowdown in 2024.
High interest rates and an outdated vehicle lineup, combined with competition from companies like Xiaomi introducing budget models, especially in China—the largest automotive market—are major factors behind Tesla’s current predicaments.
Analyst Adam Jonas from Morgan Stanley highlighted the potential fatigue consumers are showing towards Tesla’s price cuts, suggesting that these reductions might be testing the limits of the company’s profitability.
“Tesla may be witnessing price-cut fatigue with consumers and may be testing profitability levels that the company may not find acceptable,” Jonas remarked, indicating a challenging period ahead for Tesla given the age of its vehicle lineup.
Tesla’s stock has suffered significantly, with a nearly 30% drop this year, positioning it as the S&P 500’s worst performer.
Delivery expectations are set at 458,500 vehicles for the quarter ending March 31, showing a modest year-over-year increase but a significant decline from the previous quarter.
The company’s aggressive price slashing strategy, initiated by CEO Elon Musk in late 2022 to maintain production levels despite reduced demand, has led to customer dissatisfaction due to the resulting depreciation in vehicle value.
Further, Tesla has extended its price reduction efforts into 2023 across key markets including the United States, China, and Germany, in addition to offering substantial discounts and incentives.
HSBC’s report criticizes Tesla’s strategy, pointing out the rapid depreciation of Tesla vehicles in the U.S. market and questioning the effectiveness of such pricing strategies for durable goods.
Amidst warnings of “notably lower” sales growth and a focus on developing its next-generation electric vehicle, Tesla continues to navigate through a competitive landscape, notably losing its top position as the world’s leading EV manufacturer to BYD in the fourth quarter due to a price war in China.
In addition to facing reduced deliveries from its China-made vehicles, Tesla’s eligibility for U.S. federal tax credits has been compromised, further challenging its market position.
The company also dealt with production halts in Germany due to external disruptions, though these are not expected to significantly impact deliveries.