Soul-searching question: How did Tesla end up in this situation?

Among the tech stocks that surged in the first quarter, Tesla stands out as an anomaly. With a drop of over 30%, it became one of the worst performers in the entire S&P 500. This past quarter is also one of the worst in Tesla's history, marking a significant turning point in the capital market's judgment of the company.

In our view, the issues Tesla faces now are the same as Apple's: this company, long known for its "growth," is losing its growth momentum.

In Q1 2024, Tesla produced 433,000 electric vehicles and delivered 387,000, a year-on-year decline of nearly 9%, far below market expectations. The last time this happened was in Q2 2020, when sales plummeted due to the pandemic and lockdowns.

In our opinion, the core reason for the sales decline isn't the "high-interest-rate environment" Musk often cites. In the U.S., where oil prices are rising and CPI data is strong, EVs still offer decent value for money. Nor can it be attributed to competition in China, where Tesla's Q1 sales fell by only about 3.6%, with a 48% month-on-month increase in March, indicating solid competitiveness.

Ultimately, the main reason Tesla is struggling is that consumers in Europe and the U.S. are lukewarm about EVs. For example, insufficient engineers, repair shops, and charging infrastructure create hesitation among potential buyers. More importantly, no one buys a car solely for "green and low-carbon" ideals. In Western markets, Tesla needs to produce vehicles that far outperform gasoline cars in overall experience.

Perhaps in response to the sales slump, Musk announced in an April 15 company-wide email that Tesla would cut over 10% of its global workforce. This is their first major layoff since June 2022, affecting over 14,000 employees. The market reacted negatively, with Tesla's stock dropping 5.6% that day, erasing most of its 2023 gains.

For remaining employees, the only option is to keep faith in Musk, who continues to pursue his dreams in automotive, energy, and AI, aiming to steer Tesla back to growth.

01 What's the Real Problem?

Among the many companies we've analyzed, few are like Tesla: its stock and business decline isn't due to mistakes or strong competitors but a 糟糕 market environment.

First, sales data. Tesla didn't disclose regional breakdowns for Q1, but China's Passenger Car Association reports 220,876 wholesale sales and 88,456 exports, implying ~132,400 domestic sales (down 3.6% YoY).

Frankly, given China's cutthroat competition and Tesla's aging models, a 3.6% drop is impressive. Since China contributes only ~20% of revenue and ~33% of sales, the 9% global decline stems from Tesla's home turf—Europe and the U.S.

As the West's leading EV maker and electrification pioneer, Tesla's growth-stock status partly reflected optimism about energy transition. Now, slowing EV adoption in the West is undermining that narrative.

Unlike in China, Tesla dominates Western EV markets. Claims that high prices hurt sales don't hold: in 2023, U.S. sales grew 25.4% to 654,800 units, maintaining dominance.

2023 U.S. Top 20 Vehicle Sales (excluding subsidies)

This chart shows Tesla's two main models in the top 15. A Model Y, post-$7,500 IRA credit, costs $36,490-$44,990—more than rivals like Honda CR-V or Nissan Rogue, yet outsells them. Among top-20 models, only Toyota Corolla and Honda Civic start under $25K, but their sales aren't far ahead of Model 3. Price isn't Tesla's growth bottleneck.

The real issue lies in macro conditions.

EV adoption in the West has hit a snag. In 2016, the U.S. had more EVs than China; now, China leads overwhelmingly.

Per Chinese traffic data, 2023 EV sales hit 7.254 million (+38.6% YoY), with 4.924 million BEVs (68%). Meanwhile, U.S. and Europe combined sold just 4.416 million EVs (+18.3% and +48%, respectively).

The core problem: sluggish charging infrastructure rollout in the West fuels range anxiety. The U.S. has only 65,700 charging stations (181,000 ports), with nearly a third in California.

Source: Bloomberg

Range anxiety eternally plagues EVs, directly impacting consumer choice. Notably, California's EV penetration is triple other states', clearly correlating with charger availability.

Clearly, Tesla alone can't fix the West's charging gaps. To regain growth, it must look elsewhere.

02 Robotaxi Won't Save the Day

Even after losing its 2023 gains, Tesla remains highly valued.

Tesla, Mercedes, Toyota, Stellantis, BMW, Porsche gross margins. Source: Seeking Alpha

Toyota, the world's top automaker by sales, has a $240B market cap vs. Tesla's $440B+. Yet in 2023, Toyota produced 28.8 cars/employee vs. Tesla's ~13. Tesla's gross margin ranks fifth among peers, trailing Porsche, Mercedes, and BMW. Only lower legacy costs (debt, depreciation, etc.) give it higher net margins.

Thus, Musk must change to justify this valuation—or face steeper declines.

Beyond layoffs, Musk tweeted on April 1 that the long-promised Robotaxi will debut on August 8. He denied Reuters' report about canceling a budget EV but offered no details.

Musk's solution: a next-gen platform for budget EVs and dedicated Robotaxis. His tweet suggests the Robotaxi will launch first.

For Robotaxi's potential, consider Uber: 150M monthly users, $138B gross bookings in 2023, addressing just 8% of its TAM. Ride-hailing's main costs are vehicles and drivers.

Tech firms always prefer cost-cutting via layoffs, and AI advances may accelerate machine replacement in transport. This isn't entirely bad—traffic deaths far exceed disease tolls.

Thus, Robotaxis align with Musk's "humanitarian" vision and market potential. But can Tesla capture this growth, or will others benefit more?

Hypothetically, Robotaxis could be huge. In San Francisco, taxis cost $2.75/mile. If Tesla deploys $25K cars as Robotaxis, with 100K miles/year, vehicle + electricity costs would be ~$0.3/mile. Even at $1/mile, gross margins could hit 70%. A million-strong fleet might generate $100B+ annually—exceeding 2023 revenue.

This is idealized, though. Operating costs would be massive, margins lower, and scaling slow. The real hurdle: delivering fully autonomous tech that surpasses rivals.

Contrary to perception, Tesla's FSD scored "Poor" in IIHS's 14-system review (none got "Good"). Even basic Autopilot ranks eighth in Consumer Reports (61/100), with Ford leading.

Thus, launching Robotaxis requires FSD tech that satisfies consumers and regulators—a long road ahead, with fierce competition from U.S. tech and automakers.

03 Conclusion

A sad truth for Tesla: it never truly mastered EV's core tech—batteries. Most cells come from Panasonic, LG, CATL, or BYD. Outsourcing key components is common in autos but undermines Tesla's tech-company valuation.

It's like an iPhone with a Qualcomm chip or a Ferrari with a Ford engine. For now, this weakness is muted, but as Chinese automakers advance, Tesla risks becoming a follower in tech-starved Western markets.

Studying Tesla's struggles reveals another truth: without Chinese firms, tech, and products, global "carbon neutrality" is a pipe dream. $Tesla(TSLA.US) $XIAOMI-W(1810.HK) $LI AUTO-W(2015.HK)

Disclaimer: This article is for educational purposes only, not investment advice.