Are the wheels coming off for Tesla?

Are the wheels coming off for Tesla?

There was a time when it seemed like Tesla could do no wrong.

In little more than a decade, it went from a new technology to a mass-market automaker, invested billions in its clean energy business, and watched its value rocket.

But now the company is struggling with falling car sales and fierce competition from Chinese brands, as well as problems with the much-hyped Cybertruck.

Lower sales have hit its bottom line, and hurt its profits. Its share price has fallen more than a quarter since the beginning of the year.

It has cut prices in key markets, and is in the process of laying off about 14,000 workers – 10% of its global workforce. Those affected include senior executives and the entire team responsible for the much-admired supercharger range.

So is all this just a bump in the road, or are the wheels coming off Tesla’s bandwagon?

“It’s about breaking the spell,” Elon Musk explained to a specially invited audience at the Tesla factory in California in June 2012.

“The world has been under the illusion that electric cars cannot be as good as petrol cars,” he said.

Musk was speaking at the launch of the new Tesla Model S, a car he insists will shatter that illusion. It is not an empty promise.

At the time electric cars had a long reputation for being slow, unattractive and impractical, with a very limited range.

Although new models such as the Nissan Leaf are starting to develop a niche following, they have yet to make much of an impact on the wider market.

The Model S is powerful, has sports car performance, and can travel up to 265 miles on a single charge. It’s not cheap, starting from $57,000 (£47,000) in the US for the lowest performance version, but it certainly packs a punch.

Since then, Tesla has launched four more models, including the Model X SUV, the “affordable” Model 3 and Model Y, and the Cybertruck.

It now has large, so-called gigafactories building cars in Shanghai and Berlin, in addition to its original facility in Fremont, California, and several other US sites. Last year, it shipped 1.8 million cars, showing it has established itself as a mass-market manufacturer.

But according to Professor Peter Wells, director of Cardiff University’s Center for Automotive Industry Research, that is part of the problem. “When Tesla first came out, it had an exciting new product, a charismatic CEO, and it was seen as truly pioneering,” he explained.

Now, the company is “no longer an entrepreneurial new entrant and a new disruptor, but increasingly an industry incumbent with all the challenges that come when faced with a growing array of competitors in the same market space”.

Other companies, such as China’s Nio, offer more attractive products, Prof Wells said, while fellow Chinese firm BYD offers good performance at a lower price. “Basically, the world has caught up with Tesla,” he said.

There is no doubt that there is more competition than ever before. Following the diesel emissions scandal that engulfed it in 2015, Volkswagen began plowing money into electric vehicles.

And as governments around the world began to take a serious look at banning the sale of new petrol and diesel models, other well-known manufacturers soon followed suit. Customers looking for an electric car with good range and performance now have many options to choose from.

Meanwhile, in China, policy makers have for years seen the development of electric vehicles (EV) as an opportunity to take a significant share of the global market, and promote their development. The result has been the rapid growth of brands like BYD – which overtook Tesla to become the world’s largest electric car manufacturer late last year.

At the same time, as the EV market has become more established, in many parts of the world subsidies to help consumers buy them have been curbed. That may be one reason why the rampant growth in EV sales in recent years has slowed — and why manufacturers themselves have been forced to lower their prices.

According to independent auto analyst Matthias Schmidt, this certainly has an impact on Tesla.

“Finance ministers who were previously happy to offer attractive incentives for the purchase of battery electric vehicles in a seemingly empty market environment, with basically a Tesla or a Tesla on offer, are now closing their wallets,” he said.

One market where this seems to have had a profound effect is Germany. A subsidy scheme offering thousands of euros off the cost of new electric vehicles was abruptly ended in December.

EV sales there fell sharply in the first three months of the year, with Tesla down 36% compared to the same period in 2023.

The question now is whether Tesla can regain the lost momentum. Its maverick chief executive Elon Musk seems to be pinning his hopes on the company becoming a leader in vehicle autonomy – a provider of driverless robots taxi.

Last month, on his social media page X, he wrote: “Not risking the company too much, but going to the wall for autonomy is a very clear step. Everything is like a variation on a horse cart”.

Yet Musk has talked up the prospect of full autonomy for some time. In 2019, for example, he promised that within a year there will be a million Teslas on the road capable of acting as robotaxis.

The reality, so far, is quite different. Tesla’s “Full Self Driving” package remains less than its title suggests – it’s still a “hands on” system that requires the driver to pay attention at all times.

The quest for full autonomy does fit Tesla’s identity as a technology business, rather than a traditional automaker. But Musk’s critics believe it’s just a smokescreen to distract from other problems.

Meanwhile, Tesla has been cutting prices to boost sales, and slashing costs and reducing headcount to boost its margins. Just like any other car company might do.