Tesla’s growth brakes as Chinese competition leapfrogs

The news that the Model Y was the best-selling vehicle worldwide couldn’t remedy the market’s disappointment in the company’s annual results. Slow growth, dwindling margins, and a solid performing rival, BYD, form dark clouds above the company’s headquarters.

During the earnings call, the CEO of Tesla, Elon Musk, warned that the Chinese car makers could rule everyone if national governments don’t address import duties. Tesla’s meteoric ascent over the past years is sputtering.

In the last quarter of 2024, sales growth fell to a mere 3%, reaching $25.1 billion (€23.1 billion) – the smallest increase over three years. Moreover, while net income spiked to $7.9 billion (€7.3 billion), thanks to a one-time tax benefit of $5.9 billion (€5.4 billion), it still represented a substantial drop.

Adjusted for this benefit, the net income was around $2.4 billion (€2.2 billion), a 39% decrease from the previous year. No wonder that following the publication, Tesla’s stock plummeted at the start of trading on Wall Street.

Crumbling margins

Several factors contribute to the downturn. The primary reason is Tesla’s aggressive pricing strategy, which saw unexpected global price cuts. For instance, the Model Y’s price in Germany, France, and Belgium was further reduced by 3 000 euros recently. Margins have crumbled from 23.8% in 2022 to 17.6% last year. This figure is still among the best in the business, as premium German car brands barely exceed margins of 10%.

Even though the results are far from dramatic, Elon Musk expressed concern over the trend. Despite a lower average selling price impacting sales and profits, Tesla still saw a 19% increase in annual sales, amounting to $96.7 billion (€89.3 billion), with a net profit of $14.9 billion (€13.7 billion). The company also boasted a respectable 1.81 million vehicle deliveries last year, a 38% increase year-over-year and on par with the company’s earlier announced targets. The Model Y, in particular, became the world’s best-selling car, including in Europe, across all engine types. It’s the first time an electric car took the crown.

Bracing for a demolishing act

However, the honor somewhat veils the interposition of the company, which recently only released the long-awaited Cybertruck, exclusively available in the USA because of a safety homologation ruling, and a facelifted Model 3. No new product is expected in the forthcoming year, meaning it will be a year of consolidation.

A smaller, more accessible model, built on a new platform, won’t be released before mid-2025. During the presentation of the financial results, the company stated it would see a notably “lower growth rate” this year, which wasn’t the bell the stock market wanted to hear.

For now, Tesla is wholly focused on developing the new architecture in Texas. Press agency Reuters has revealed that the company is in talks with suppliers over a compact crossover model called Redwood.

China’s BYD, which succeeded in surpassing Tesla in the final quarter of 2023, is mounting up to the pressure. During the earnings call, Musk said that the Chinese brands will “pretty much demolish” every car maker if import duties aren’t addressed. He called them “extremely good” and “the most competitive in the world.”

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