Falling profitability and being defeated by China, ‘former No. 1’ Tesla faces difficult times

Tesla's stock price fell 11% this year alone, facing a crisis
With worsening profitability and logistics risks, investors are turning their backs on the double negative factors
Chinese electric vehicles, led by BYD, lost 'world's first place'

The stock price of Tesla, an American electric vehicle company, has fallen significantly this year. On the 12th (local time), Tesla’s stock price closed at $218.89 on the New York Stock Exchange, down 3.67% from the previous day. The stock price decline over the 9 trading days this year amounts to a whopping 11.91%. It is interpreted that many investors, unable to withstand the ‘multiple adverse factors’ such as worsening profitability, slowing demand for electric vehicles, and rapid growth of the Chinese electric vehicle market, turned their backs on the company.

Bad news after bad news, Tesla is shaking

The causes of Tesla’s stock price slump are complex. First, on the 12th, Tesla displayed the starting price of its flagship model, Model 3, on its Chinese website at 245,900 yuan (about 44.89 million won), a 5.9% decrease from the previous price. The starting price of Model Y was changed to 258,900 yuan (about 47.33 million won), down 2.8%. Investors believe that Tesla’s vehicle sales profitability in China will decrease in the future and are accepting this as ‘bad news.’ It is interpreted that they were concerned about the worsening trend in profitability that has been observed since last year.

Logistics risks resulting from military conflict in the Red Sea region are also having a negative impact on stock prices. Tesla is experiencing logistics problems due to attacks on ships by Yemeni Houthi rebels in the Red Sea region. Automobile production at German factories will be halted from the 29th to the 11th of next month, when a parts shortage is expected. With negative news piling up one by one, the fact that Tesla has implemented wage increases for all production workers at Tesla factories in the U.S. starting this year has also raised investor concerns.

The market is also changing in a direction unfavorable to Tesla. American rental car company Hertz recently announced that it would sell 20,000 electric vehicles, including Tesla vehicles. This passage clearly reflects the slowdown in demand for electric vehicles among American consumers. New businesses that were considered Tesla’s ‘future business’, such as fully autonomous driving and artificial intelligence, are also struggling to gain momentum. There are comments coming from all corners of the industry that it will be difficult for Tesla to maintain its current position by manufacturing cars alone.

Tesla lost to BYD? China’s ‘electric vehicle raid’

The rapid growth of China’s electric vehicle market is also strangling Tesla. In the fourth quarter of last year, BYD, a leading Chinese electric vehicle company, surpassed Tesla to take first place in global electric vehicle sales. With price competitiveness as a weapon, it entered more than 70 countries on six continents and dominated the global electric vehicle market. On the 4th, BYD said, “We sold a total of 3,024,417 units last year,” which is a 61.9% increase compared to 2022.

The Chinese electric vehicle market is evaluated as having both domestic demand and exports. In fact, according to the Japan Automobile Manufacturers Association (JAMA), Japan’s automobile exports from January to November last year were 3.99 million units and China’s 4.412 million units. China has easily surpassed Japan, which has many global automobile brands such as Honda and Toyota. The China Automobile Industry Association announced that as of January to November last year, exports of passenger cars to China amounted to 3.72 million units. Among these, exports of ‘new energy vehicles’, including electric vehicles, reached 1.09 million units, an 83.5% increase compared to 2022.

China’s rapidly growing electric vehicle market is securing market share with improved quality and lower prices. It looks completely different from before, when it was shunned with the stigma of being so-called ‘cheap’. While BYD and other Chinese electric vehicle brands are aiming for the ‘peak’ of the global electric vehicle market, industry analysts say that Tesla will have to produce ‘blockbuster’ performance that exceeds market expectations in the future to maintain its position.