With declining sales, is the Tesla toy broken?

Tesla reported an 8.5% drop in sales in the first quarter of 2024 compared to the same period in 2023. A harsh return to reality?

The grace period is over. Tesla is no longer an extravagance or a disruptive way to get around. Tesla has become just another car manufacturer, with its obligations for results, development, product plans, strengthening its range, economies of scale, and other promotional efforts.

Many signs had already hinted at Tesla’s sudden downturn at the beginning of 2024. Discounts have been more aggressive than ever (the Model Y and Model 3 have dropped to €38,990 in Europe, for instance), the Shanghai factory has slowed its production rate due to lack of demand, and advertisements have proliferated across social networks.

Elon Musk is also less talkative or arrogant now, probably at the request of his board, as he was cited as the leading reason for not buying a Tesla in a global survey. The atmosphere is different.

Is it serious, doctor?

Alas, the numbers are stubborn, and the results for the first quarter of 2024 are even compelling: -8.5% in sales compared to the same period in 2023. However, global demand for electric vehicles continues to grow, in China as well as in Europe and the United States. Mindsets have embraced this so-called virtuous new engine for the planet. Costs are decreasing, making electric cars almost as priced as their internal combustion counterparts thanks to state aid.

But then, what is happening at Tesla? We will keep repeating it: Tesla is too dependent on its Model Y / Model 3 range. Out of the 386,810 cars sold between January and the end of March 2024, 369,783 were Model Y or Model 3. All other models combined – Model X, Model S, and Cybertruck – accounted for only 17,017 models.

This dependence is a deadly trap for Tesla. The fatigue offered by these two vehicles, with the Model Y being the world’s best-selling car in 2023, is not offset by the arrival of new offers. Particularly more affordable ones. The automotive market cannot consist solely of SUVs with a starting price of around €40,000. The reality is much harsher: in France, the average price of a new car is now €30,000.

Tesla seems to be caught in its own trap: by promising the demise of all historic car manufacturers through its ability to wage a brutal price war, Musk has received backlash. By cutting its prices, Tesla has shrunk its margins and instilled the enduring idea that electric cars are affordable. This is admirable, but today Tesla makes very little money per car sold. And financial analysts are concerned.

Reasons to be optimistic?

These are the factors that compelled Tesla to raise its prices in March, even at the cost of reducing sales volume. And these are the same that have been downgrading Tesla’s stock rating on the New York Stock Exchange for months, with shares dropping another 6.6% on the day the first quarter 2024 results were announced. From a value of $407 in 2021, shares were “only worth” $166 as of April 3, 2024. Within 6 months, shares have lost 32.4% of their value.

Tesla urgently needs to launch its model priced below €25,000 and refresh its Model Y as it did with the Model 3 at the end of 2023.

Having said all this, Tesla remains a very attractive company that had the wisdom not to confine its expertise solely to the automotive sector. A significant source of its revenue comes from deploying electric charging stations (which it charges its competitors to use), energy generation (solar panels), and storage. Not to mention artificial intelligence, an enormous economic engine in the making through synergies with the social network X.