Tesla Faces Chill in Market Valuation, Drops $94 Billion Amidst Global Electric Vehicle Winter

The massive electric vehicle (EV) company Tesla had an incredible 2023, more than tripling its share price in just a single year. 

However, the beginning of 2024 paints a different picture, marking Tesla’s worst start to any year in its history. The company has faced a significant setback, losing over billion in market valuation within the first two weeks of the year. (louismassaro)

Several factors have contributed to Tesla’s recent struggles, including a major U-turn on EVs by car rental giant Hertz Global Holdings, continuous price reductions on its Chinese-manufactured cars, and indications of increasing labor costs. These challenges come against the backdrop of a slowdown in EV demand, particularly in the United States.

Analysts point to investors’ primary concern: stagnating growth for Tesla. The ongoing price cuts in China intensify worries, signaling a potential race to the bottom in the fiercely competitive EV market. 

The 12% drop in Tesla’s stock since the start of January is the most significant in percentage terms since 2016, reflecting a challenging period for the company. Tesla’s strategy of aggressive price cuts since early 2023 aimed at boosting demand has resulted in a steady erosion of its once-robust profit margin. 

Tesla’s Automotive Gross Margin Drops to 16.3%

The automotive gross margin, excluding regulatory credits, dropped to 16.3% in the third quarter, compared to 27.9% a year earlier. Pressure is mounting further as Tesla faces rising labor costs in its US plants.

Adding to the woes, Tesla has had to redirect shipments bound for its Berlin plant due to security concerns in the Red Sea, leading to the suspension of most production near the German capital. The challenges extend to Tesla’s previously buoyant stock performance. 

Last year, it ranked among the top performers in the S&P 500, but in the current year, it stands among the worst. Critics argue that Tesla’s past success and lofty expectations have made it vulnerable to market reactions. 

The company’s valuation, once at $750 billion, now faces scrutiny, especially as Tesla struggles to deliver on promises of fully autonomous driving and AI capabilities, key components embedded in its valuation.

In essence, Tesla’s tough start to 2024 reflects the harsh realities of an evolving market and the heightened expectations surrounding the company’s future prospects.