Palo Alto, CA – Tesla shares plunged over 9% on Monday, putting the electric vehicle maker on track to lose nearly $50 billion in market capitalization after the company warned of slowing sales in an internal memo.
Tesla’s stock was trading at $167 per share as of writing, hitting its lowest level since August 2020 and extending year-to-date losses to 65%. The sharp decline in share price followed an ominous company-wide email sent by CEO Elon Musk on Sunday night indicating vehicle orders were tracking “very poorly” compared to the prior year’s peak.
With Tesla’s market cap dropping below $190 billion, the company risks losing its position as the most valuable U.S. automaker once again to General Motors. Tesla’s fall from a trillion-dollar valuation and 40% drop in deliveries signal intensifying competition and demand concerns for the EV leader.
“Tesla appears to have hit an inflection point with a sputtering demand trajectory which is alarming for a growth company,” said Dan Ives, an analyst at Wedbush Securities. “Musk and Tesla need to go on offense with demand levers including price cuts to stimulate demand.”
Sales Tracking ‘Extremely Low’ After Boom Years
In his company-wide email, Musk painted a gloomy picture of sales, saying “We face the most difficult quarter in Tesla’s history” as new vehicle orders were “tracking to almost twice as many cars produced than delivered.”
This indicates demand has “fallen off a cliff” after years of booming growth, Ives explained. Tesla delivered over 936,000 vehicles in 2022 but now guides for just 1.8 million deliveries in 2023, signaling a major slowdown.
Competition eating away at Tesla’s dominance along with record price hikes last year on vehicles appear to be denting sales. With U.S. tax credits shrinking in 2023, Tesla also risks losing out on a key subsidy advantage.
Musk implored employees in the memo to ensure quarter-end delivery of all cars and asked them to volunteer at delivery centers. But analysts say EV demand drop-off running deeper than just quarter-end delivery struggles.
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“This quarter will likely be one of the most difficult in Tesla history,” said Gene Munster of Loup Ventures. “Deliveries are slumping against the backdrop of macro pressures.”
China Worries Add More Uncertainty
Besides U.S. demand concerns, China – Tesla’s second largest market – also poses uncertainty amid COVID disruptions. Tesla’s Shanghai Gigafactory produced over 70% of the company’s total vehicles last year.
But recent protests in China against harsh COVID restrictions raised fears of further output cuts for Tesla if lockdowns persist.
“China’s weakness adds another overhang for Tesla in 2023 along with its ballooning inventory heading into a slower growth period,” Ives explained.
With Tesla continuing to add more production capacity globally, analysts fear supply will soon vastly outstrip demand – spelling further trouble for the automaker.
Tesla Bulls Remain Defiant
Yet some Tesla bulls remain defiant against growing criticism, arguing the sales drop is a temporary blip.
“I have no doubt whatsoever that the naysayers are going to look extremely foolish for having doubted Elon & Co,” said influential Tesla investor Ross Gerber.
But Tesla also faces growing reliability issues, price competition, and a distracted CEO in Elon Musk who is immersed in Twitter. Combined with a weakening economy, Tesla’s triple boom years of growth appear to be ending.
The coming months will be pivotal in determining if the current sales slump is just cyclical or a sign of deeper troubles ahead for the once unstoppable Tesla juggernaut.
