Electric vehicle growth faces increasing challenges, Tesla's stock price continues to decline

According to the Zhitong Finance APP, Tesla (TSLA.US) stock price continued to fall on Wednesday, closing down 1.65% at $205.75.

All financial reports and related electric vehicle news show a consistent trend: the current growth is becoming more challenging. Earlier on Wednesday, Li Auto (LI.US) announced better-than-expected second-quarter financial results and provided good financial guidance for the third quarter. These news usually have a positive impact on Li Auto's stock and its peers' stocks, but the initial uptrend quickly disappeared. The company's American Depositary Receipts (ADRs) listed in the US rose by about 2% shortly after the financial report was released, but eventually fell by 16% to $17.8 per share.

Li Auto reported earnings per share of about $0.10 for the second quarter, exceeding Wall Street's expectations of $0.09. The company expects to deliver 145,000 to 155,000 vehicles in the third quarter, a year-on-year increase of about 38% to 48%; revenue is expected to be between $5.4 billion and $5.8 billion, a year-on-year increase of about 14% to 22%. The midpoint of this range is $5.6 billion, better than analysts' forecast of $5.5 billion.

Normally, better-than-expected financial reports and good guidance help stocks rise. However, the issue lies in the fact that the growth rate of revenue is expected to be lower than the increase in deliveries, partly due to the decline in electric vehicle prices due to intensified competition. This factor has pushed down profit margins and also affected the stock prices of most electric vehicle manufacturers.

Li Auto's operating profit margin in the second quarter was below 2%, compared to 6% a year ago. Tesla's profit margin in the second quarter was about 6%, a decrease from 10% in the same period last year.

With prices falling and competition intensifying, the pressure to maintain profit margins has prompted electric vehicle manufacturers to produce cheaper electric vehicles. On Tuesday, XPeng Motors (XPEV.US) unveiled a low-priced electric car named MONA. The price of this model will range from 120,000 to 156,000 RMB, equivalent to about $16,800 to $22,000. Deliveries are expected to start in early 2025.

So far, XPeng Motors has been manufacturing higher-priced vehicles, with its P7 sedan priced at around $35,000, similar to Tesla's Model 3.

XPeng's new electric car is not designed to compete with the Model 3. MONA will compete with low-priced electric vehicles from brands such as BYD, Changan, and others; in the Chinese market, there are already dozens of low-priced electric vehicles available.

BYD (BYDDY.US) also released financial data for the first half of 2024 on Wednesday. Automotive sales were approximately $32 billion, a year-on-year increase of about 10%, while sales volume increased by about 27% year-on-year. Management attributed the slower sales growth compared to vehicle sales growth to "intensified competition." BYD's ADRs listed in the US fell by 2.9%.

Tesla's Model 3 is its lowest-priced model. Like its Chinese competitors, Tesla is also seeking to introduce more affordable models to expand its market coverage. Tesla's management earlier stated that they plan to launch a low-cost Model 2 in early 2025, with an expected starting price of $25,000 in the US Investors are hoping that a newly launched low-priced model will boost Tesla's growth. In the first half of 2024, Tesla delivered approximately 831,000 vehicles, a year-on-year decrease of about 7%.

In the first half of 2024, Tesla sold around 278,000 vehicles in China, a year-on-year decrease of about 5%. In the United States, Tesla sold about 304,000 vehicles, a nearly 10% decrease year-on-year.

Slowing growth is a challenge faced by all electric vehicle manufacturers. On Tuesday, General Motors (GM.US) finally confirmed plans to build a $3.5 billion electric vehicle battery factory in Indiana. The factory will have the capacity to produce batteries for up to 500,000 pure electric vehicles per year. The new battery plant is a positive signal that General Motors is still committed to the electric vehicle business. However, the factory is planned to start production in 2027, about a year later than the company's initial expectations.

As of Wednesday's trading, Li Auto's stock has fallen by about 43% year-to-date. Tesla's stock price has dropped by about 16%, while BYD's stock price has fallen by about 7%. General Motors' stock price has risen by about 37%. The company's continued profitability in traditional automotive business and large-scale stock buybacks have outweighed concerns about the slowdown in electric vehicle growth.

General Motors, Tesla, and other automakers still hope that the growth of electric vehicles will accelerate in the coming years. They are investing billions of dollars to achieve this goal