Stock Market

Tesla Braces for Potential Sales Decline Amid Market Headwinds

In what could mark a concerning turn of events for the electric vehicle pioneer, Tesla Inc. is seemingly approaching an ominous milestone. The conglomerate, known for its rapid growth in the electric vehicle sector, is facing the possibility of dwindling demand and rising interest rates, creating a ripple effect that appears to be eroding sales figures.

Analysts Signal a Shift in Tesla's Trajectory

A pronounced shift in analyst projections was observed as Tesla approached the end of the quarter, with updated delivery reports painting a rather somber picture. The discourse on Wall Street suggests that Tesla may be on the cusp of its first sales slump since the outset of the global pandemic.

Analysts, upon aggregating their forecasts, suggest Tesla is likely to have handed over 453,964 vehicles to customers in the last quarter. This figure reflects a decrease of more than 6% compared to the historic highs recorded in the final quarter of the previous year, which is traditionally the peak season for vehicle sales. The focus now shifts to whether Tesla can surpass the 422,875 deliveries from the first quarter of 2023, thereby averting a year-over-year dip, which hasn't been witnessed since the second quarter of 2020.

Musk's Directive May Slow Momentum

Tesla's CEO, Elon Musk, made a controversial move in the last stages of March that many believe has compounded the sales challenges. His directive, aimed at mandating all North American customers to test the driver-assistance system dubbed "Full Self-Driving" through brief drives, has been openly acknowledged by Musk as a likely impediment to the pace of sales.

Plagued by the negative press surrounding the feature’s name — deemed misleading by critics — Tesla has initiated the offering of a complimentary one-month trial of Full Self-Driving, which typically carries a price tag of either $199 per month in subscription fees or a one-time payment of $12,000. This strategy, alongside a suite of incentives ranging from temporary $1,000 price cuts to complimentary supercharging, is part of a broader push to boost consumer interest. Additionally, Tesla has increased its digital presence, amplifying advertising through Google and Musk’s own social media platform, X.

Read More: Tesla's $350 Billion Stock Slump Shreds Investor Expectations

Tesla is navigating through a phase described by Musk as an interlude between significant expansions. The company experienced robust growth spurred by the Model 3 sedan and Model Y sport utility vehicle, while the next surge is anticipated with the roll-out of an economically priced next-generation car expected to enter production late next year.

With the arrival of this new vehicle still in the distant future, concerns mount around whether Tesla can sustain its momentum, as per the company’s own intimations of a “notably lower” growth rate this year. Some market observers fear this could translate to a stagnation in growth for the first quarter.

Deutsche Bank Adjusts Predictions Amid Uncertainty

Deutsche Bank’s analyst Emmanuel Rosner has revised his predictions for Tesla's sales multiple times over the last month. At present, his forecast puts the number of vehicles sold by Tesla in the last quarter around 414,000, a slight dip from the figures posted the year before. According to a report from March 28, Rosner suggests that escalating concerns related to vehicle volumes and earnings could dampen investor sentiment and exert further downward pressure on Tesla's stock. Already this year, Tesla's shares have experienced a plummet of 29%, landing them at the bottom of the performance chart for the S&P 500 Index.

External Challenges Confront Tesla

The company has grappled with its fair share of operational disruptions during the quarter, which have included several instances where the production at its Berlin plant ground to a halt. Another point of dilution came with the transitioning of its California factory to accommodate manufacturing upgrades on the Model 3, which typically leads to a slowdown in production capacity.

The competitive landscape is intensifying as well, particularly in China. Tesla finds itself losing ground to BYD Co., which has emerged as the world's premier EV maker at the close of the previous year. According to sources familiar with internal discussions, Tesla's Shanghai plant was instructed to scale back production, operationalizing a 5-day workweek rather than the expansive 6 1/2-day schedule previously maintained.

The Core of Tesla's Portfolio: Model 3 and Model Y

Tesla’s vehicle lineup's spine relies heavily on the Model 3 and Model Y, which, combined, comprised a staggering 96% of the company’s global deliveries last year. Despite this significant reliance, Tesla also boasts the Model S sedan and the Model X SUV as part of its stable, and has recently begun distribution of the long-awaited Cybertruck late last year — though specific sales numbers for the rugged utility vehicle are yet to be publicly dissected.

Assistance and Acknowledgments

This layered analysis and the insights provided incorporate contributions from various experts, including Esha Dey and Craig Trudell.

In today’s ever-shifting automotive landscape, the figures and forecasts surrounding Tesla serve as a barometer not just for the company but for the broader electric vehicle market. As the industry continues to evolve and new challenges emerge, all eyes will undoubtedly remain fixed on Tesla's ability to adapt and maintain its market stronghold.

©2024 Bloomberg L.P.