Tesla And Chinese Rivals Struggle As U.S. EV Sales Slow
The world of car making has flipped.
China shipped more cars abroad than Germany in 2022, becoming the second-biggest exporter, and more than Japan in 2023.
The share of EVs in China's car exports has been up to 25 percent from 15 percent just two years ago. EV sales are slowing in China, however; iits prime EV maker, BYD, just slipped to second place again behind Tesla. Chinese manufacturers are making extra effort to push exports.
In America EV sales are slowing as well, and this is a big concern to Tesla. One analyst said Tesla’s stock could drop top $14 and the company could “go bust”. Mind you, Per Lekander’s firm Clean Energy Transition will profit if Tesla’s shares fall, so there might be a hint of self-interest in that call.
Echoing the sentiment, however, Dan Ives, an analyst with Wedbush who has been very bullish on Tesla’s stock, exclaimed that “This was an unmitigated disaster 1Q that is hard to explain away.” The drop in sales was far worse than expected, he noted to investors.
There had in fact been a rumor that Tesla planned to cancel plans to build an entry-level EV. The “Model 2”, with a price-point of $25,000, was a long-promised entry into the affordable car market. Musk originally saw that as Tesla’s primary mission: affordable EVs for everyone. Production is evidently still planned for the latter half of 2025, at the Texas plant.
The cheapest car now in production, the Model 3, comes in at $39,000.
China’s car makers are also occupying the ground that Musk wants to stake out.
In a sense, Musk invited the Chinese to be his competitors. He contracted Chinese car maker Build Your Dreams (BYD) to make the critical component for its cars in China: the battery.
Once BYD got that skill under its belt, it started making its own EVs – a move that Musk originally derided. Now, BYD is the world’s foremost EV maker. He is scoffing no longer. I have been in those factories in the earlier days, and could see the hard word of the employees. If I had been Musk, I would have been very afraid. What would possess someone to give the job of battery-making to a potential rival? Every car that Tesla sells is a win for BYD, and every car that BYD sells is an even bigger win for BYD. That sounds like a spiral-down business model.
Lekander contends that Tesla is a “no growth” stock.
He sees Telsa’s slide as a “demand problem,” regarding two cars going stale in sales. The Model 3 and Model Y make up the bulk of the U.S. automaker’s sales. The sales of its Cybertrucks are not meeting expectations.
Other commentators have speculated that customers are staying away from Tesla for a different reason: two-thirds of Americans say they don't trust Tesla cars over safety fears. They are not confident in Tesla’s self-driving technology. It has come to light that self-driving vehicles are involved in double the number of accidents per mile driven compared to traditional vehicles.
America’s EV players recently launched a probe into data security concerns around Chinese connected cars. President Biden said that the probe was an "unprecedented action to ensure that cars on U.S. roads from countries of concern like China do not undermine our national security".
Call it the “Tik Tok” defense. If you can’t beat them fairly, call in the national security detail.
The Chinese government gives a massive amount of aid to its carmakers, which may be alien to international practice. It’s hard to ask Biden to play by rules that the Chinese are ignoring.
Musk's company recently recalled nearly all of its autonomous vehicles after an investigation by NHTSA found that almost 1,000 accidents occurred when the cars were put on autopilot mode.
Musk’s brother, Kimbal estimated the electric vehicle company won’t offer a finished version of its Full Self-Driving program for possibly five years, contradicting Elon’s target of a completed release later this year. He also expects Tesla to eliminate steering wheels altogether once the company reaches its goal of full autonomy.
Elon has been promising Full Self-Driving Cars every year since 2014.
Without some kind of technical advantage, Musk’s company is in for a rough road. Musk himself has called on the US government to impose a trade barrier on his Chinese rivals, who could “pretty much demolish most other car companies in the world.
He also launched a price war to attract consumers, and announced plans to produce a cheaper car called “Redwood”. Tesla dramatically lowered U.S. prices by up to $20,000 for some models last year. In March it temporarily knocked $1,000 off the Model Y, its top-selling vehicle. Those price cuts narrowed the company’s profit margins and spooked investors.
Other automakers also have had to cut electric vehicle production and reduce prices to move EVs off dealership lots. Ford, for instance, cut production of the F-150 Lightning electric pickup, and lopped up to $8,100 off the price of the Mustang Mach E electric SUV in order to sell 2023 models.
Chinese companies are not standing still. They are enhancing in-car technology and introducing features such as battery-swapping.
With battery swapping, instead of parking next to a row of charging stations, a driver enters a garage-like structure and pressed a button on the dashboard. A mechanical arm extends to remove the original battery from the bottom of the car and installs a new one. The automated process is completed in minutes – even faster than gassing up a car.
Home to half the globe’s electric vehicles, China has 85% of the world’s fast chargers and 65% of slow chargers, leading the globe in EV infrastructure. Yet Chinese EV owners queue for well over an hour for a charging station during holidays and then wait another average 50 minutes for the vehicle to charge.
It can be even worse in America. Tesla owners are raging about the long lines at the “Supercharging” stations, where one can charge for up to 200 miles in as little as 15 minutes. But that time-saving evaporates if the driver is waiting an average of 90 minutes for a charge in areas like Coney Island.
With battery swapping, customers can choose to own a battery or simply subscribe to a battery rental service at about $1,700 per year. If the customer chooses to not own a battery, the purchase price could drop by as much as $9,600. Each battery swap costs $11–$14.00.
The future of battery swapping, however, hinges on the application of industry-wide standards to ensure cross-brand battery compatibility. China is going to push toward a universal standard of battery size, connection points, and protocols to facilitate the growth of battery swapping.
The adoption of the technology rests on costs of installation for the swapping stations. A battery swapping station can cost over $200,000 to install. A fast-charging station can be had for as little as $14,000, and a slow-charging station for $1,300. In other words, you can put in 15 fast-charging stations for one battery swapping station.
Baruch Herzfeld, founder of New York City–based e-bike battery swapping company Popwheels, forecast that “I believe the future of mobility in America is a smaller vehicle, a personal vehicle with a swappable battery, but it will not happen in the U.S. without substantial investment. There simply isn’t a network of manufacturers, suppliers, and financers for it now.”
Not that he needs more trouble, but Musk also has issues in another field.
Usage of Musk’s “X” social media platform have also dropped last year, by some 30%. As bad, advertisers have fled the platform. Walmart's move to stop advertising on X, is a decision that had been cooking in the oven for some time. While this marks another setback for Musk, who has alienated advertisers with his recent posts and controversial remarks, it is also proving difficult for X's ad sales team to conduct productive business discussions.
Overall, X may have lost over 71.5% of its value, and may only be worth $12-14 billion, much less than the $44 billion that he had paid for. The drop in valuation comes after Fidelity reduced the valuation of its holding in X by an additional 11 per cent.
Annual interest on “X” is more than $1.2 billion. That's because Elon Musk loaded up Twitter with about $13 billion of debt to fund his take-private of the company.
In better news for Musk, the value of his SpaceX company has risen to more than $180-billion to become one of the world’s most valuable start-ups. Profits reached $3-billion in 2023.
SpaceX predicts that it will make almost 150 launches in 2024, which will generate launch revenue of $5.4-billion.
And SpaceX's Starlink satellite internet business has become a bigger revenue driver for the space company. In 2024, between selling terminals and providing Starlink service to its customers, SpaceX could bring in another $6.8 billion.
According to The Motley Fool, there could be another $1 billion in extra revenue from assorted other SpaceX ventures -- demonstrating in-orbit refueling procedures for NASA's "Tipping Point" project, supporting a private astronaut Polaris Dawn mission, recording revenue for its work on the Project Artemis moon landing effort, and providing military communications services via its new Starshield division -- and it is calculated that SpaceX revenue will pass $13.3 billion this year.
SpaceX launch revenue is likely to grow 56% year over year in 2024, while Starlink revenue might grow 63%. SpaceX generated an adjusted profit margin of nearly 35%.
All of this based on a technology developed under contract to NASA – proving the value of government funding.
But Musk will never mention that part.
Which I find to be very odd. He poses as the originator of these great projects, when everyone knows he took over a good idea and ran with it. There’s nothing wrong with that. It is a wonderful skill.
He devalues himself by trying to wear someone else’s cloak.
But he has a very good story to tell, all on his own. He should just take the credit and then stop talking.
He is his own enemy. But in the meantime, onwards and upwards!
Thank you for reading Barry’s Substack.
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