Tesla faces tough competition as the global EV market intensifies

  • Tesla faces its lowest profit margin in over six years amid a boom in the EV market’s competitiveness.
  • Some questions marks loom over release plans for the Model 2 and Cybertruck production, with more details required to bolster the company’s top spot.
  • Some concerns over price cuts, and battery production challenges add to Tesla’s forecast.

Tesla Model 2 and Cybertruck uncertainty creates challenging headwinds for the EV icon as the surrounding market grows

Tesla faces challenging financial headwinds, according to comprehensive Reuters reports. Projections indicate its lowest gross profit margin in over six years. Against a backdrop of internal changes, price reductions, and increased competitiveness in the market, the iconic brand takes a step back from the top spot for the first time in years. Investors have more choices than ever for EV profitability, so uncertainty is a given when a brand focuses its attention on future projects and technologies for projected wins on upcoming market trends.

Central to investor queries is the uncertain fate of Tesla’s Model 2. Initially slated for release in 2025, recent reports suggest the company has abandoned plans for this affordable vehicle. Instead, it prioritises the development of a self-driving robotaxi using the same platform. CEO Elon Musk has dismissed these reports, however rumours can be all it takes to give investors cold feet. Concrete details of the fate of the Model 2 are yet to be announced. However, the Model Y is now available for a reduced price of sub-$30k. The cut will, undoubtedly, drive sales, if not profitability.

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Graham Tanaka, portfolio manager at Tanaka Growth Fund, highlighted the pivotal role of the Model 2 in Tesla’s business model. 

“The Model 2 was supposed to be the moat around their business model, but it’s been delayed at a minimum. We think there’s going to be more risk in owning Tesla next year because we don’t know how fast the Cybertruck will be ramping up.”

Tesla’s sales growth has uncharacteristically slowed, evidenced by a recent 8.5% decline in deliveries and an uptick in inventory levels. Despite implementing widespread price reductions across its product range globally. Analysts anticipate a downturn in Tesla’s annual deliveries for the first time in 2024. Automotive gross margins are expected to drop to 15.2%. This slow-down mirrors global supply chain issues commonly faced by major manufacturers.

Tesla is grappling with obstacles in mass-producing its newer 4680 batteries, critical for the Cybertruck and cost-saving endeavours. The recent departure of Tesla’s battery chief, Andrew Baglino, highlights the ever-evolving Tesla battery landscape. Battery production has been a challenge for EV manufacturers since the dawn of the sector. These obstacles have been tackled before, and Tesla will tackle them again.

Despite this outlook, Tesla retains its position as the world’s most valuable automaker.

Investors now question shifts in the company’s product strategy. However, most remain optimistic about the potential of Tesla’s self-driving technology. This technology has huge potential for the company, as autonomous driving gains popularity the world over.

Furthermore, Tesla recently introduced a free trial for its Full Self-Driving feature and slashed its price. Unfortunately, challenges persist in scaling up Cybertruck production. This is evidenced by a recent recall affecting thousands of vehicles. That being said, innovation comes with risks, that’s how Tesla hit the top spot in the first place. Despite the struggles surrounding the Cybertruck, it is an undeniably bold move in the sector.

Investors eagerly await insights regarding Cybertruck production targets and cash flow projections. As the relatively young sector takes flight globally, the former stalwart front-runner of the transition hits its first major stumbling block. As the market becomes more and more competitive, the iconic brand needs to re-affirm its spot at the top.

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