Technology Why Tesla's electric car bubble is threatening to burst

Why Tesla's electric car bubble is threatening to burst

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China’s BYD stole Tesla’s crown as the biggest electric car company by sales in the world at the end of 2023.

Musk has acknowledged that Tesla is in a rut but insisted that the company is simply “between two major growth waves”. It continues to work on a new generation of cars and hopes to attract buyers with its “self-driving” technology.

Tesla evangelists will argue Tesla’s disappointing numbers on Tuesday represent a little more than a pothole rather than veering off course.

Dan Ives, a technology analyst at Wedbush Securities, said the start of 2024 had been a “nightmare quarter” for the carmaker largely because of events outside of its control.

Supply chain issues triggered by Houthi attacks on ships in the Red Sea put the brakes on Tesla’s production lines in Europe in January.

Weeks later, its German plant at Grünheide, in Brandenburg, was subjected to an arson attack, damaging an electricity pylon that supplies the plant. A local far-left environmental group calling itself “Vulkangruppe” (“volcano group”) claimed responsibility. Musk decried the group as the “dumbest ecoterrorists on Earth”.

However, a more significant challenge has emerged in China. The strength of BYD has made Tesla a tougher sell in the crucial Chinese market, where it has been forced to cut prices on its ageing Model 3 and Model Y cars to compete with the domestic upstart.

This week, Tesla began a major upgrade of its “Full Self-Driving” software, which will make driverless features such as automatic navigation more widely available. The software update insists drivers must maintain control of the car – calling it “supervised” self-driving.

It is hoped that the new feature will be a selling point for drivers. However, while long-touted by Musk, the upgrade could in fact further delay sales at least initially.

The billionaire has ordered Tesla sales staff to undertake a full test drive with every new customer to demonstrate the technology in a bid to show people just how good it is. However, Musk admitted in an internal email that this requirement “will slow down the delivery process”.

Elon Musk

Aside from these operational and competition challenges, there’s the issue of Musk himself. The billionaire’s increasingly divisive social media presence and right-wing political tilt has put him at odds with many would-be Tesla buyers.

Musk’s often erratic posting on X, the social network he owns, has included claims that the Democratic Party is allowing illegal immigration to boost its vote share, tirades against the “woke mind virus” and attacks on corporate diversity initiatives.

Just 31pc of US consumers said they would consider buying a Tesla in January, according to a survey by marketing intelligence firm Caliber. That was down from 70pc two years ago.

“It’s very likely that Musk himself is contributing to the reputational downfall,” Shahar Silbershatz, chief executive of Caliber, told Reuters.

With Tesla now worth half of what it was in 2021, has the electric car company’s bubble finally burst?

The stock slide has coincided with a broader souring on electric cars more generally as demand for new EVs falters. Small US challenger Fisker has seen its shares plunge 99pc, while shares in Lucid Motors are down 94pc from their peak.

Windsor, the technology analyst, says Tesla’s valuation is “still silly”.

Regardless, it is a brave investor who bets against Musk. Its models remain the top electric vehicles by sales in the UK and the US. Its $60,000 cyber truck, with its retro-futuristic design, has enjoyed strong demand.

It will launch a luxury Roadster in 2025 to appeal to affluent buyers and it is rumoured to be working on a $25,000 car to compete with its Chinese rivals. Tesla could even begin advertising to drum up sales, an expense it has until now avoided entirely.

Importantly, Tesla’s sales figures for the first three months of 2024 show it leapfrogged BYD, reclaiming its title as the world’s largest EV seller that it lost over the Christmas period. BYD sold 300,114 battery-powered vehicles during the first three months of 2024, it said on Monday, below Tesla’s output.

Yet after years in pole position, Tesla faces a bumpy road ahead.

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