Why is Tesla stumbling?
More competition, confusion about the future and a giant pay package for Elon Musk
Tough times have arrived at Tesla. The car company led by billionaire Elon Musk "is planning to lay off about a tenth of its workforce," The Associated Press said, following a year of falling sales and rising competition from rivals like China's BYD. Tesla responded to the tighter market by cutting prices for some models by as much as $20,000, but that move "clipped Tesla's profit margins." The result? As many as 14,000 Tesla employees will lose their jobs.
That might not come as a surprise: Tesla has long been the king of the electric vehicle market, and EV sales are famously slowing down. But Musk's company has a bigger problem. "EV sales are slowing," The New York Times said. "Tesla's are slumping." EV sales in America rose at a relatively anemic 2.6% from the first quarter a year ago; Tesla's fell by 13%. Who is benefitting? Automakers like Ford, Hyundai, Mercedes and BMW have all increased their share of the EV market. It has been a quick fall for Tesla: The company's market share "has fallen from 62% at the start of 2023 to 51% now."
The latest
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Changes were felt immediately. Tesla “slashed its prices” for vehicles in the U.S., China and Germany following the layoff announcement, NPR said, with cuts also expected for other countries in Europe, the Middle East and Africa. The company also “slashed a newly formed marketing team” as part of the layoffs, Bloomberg said, and made “significant layoffs” in Tesla’s design studio. That’s a sign that Tesla’s problems are due to “lower demand” for its cars, one analyst said.
Tesla is not the only Musk company facing increased competition, however. SpaceX — another market leader, this time in the rocket industry — is also facing stiffer competition from rivals "poised to challenge SpaceX on a number of fronts," The Washington Post said. Blue Origin, Rocket Lab and the United Launch Alliance are among the companies developing heavy-lift rockets to compete for work for NASA and the Pentagon. And SpaceX may also face a problem that has developed for Tesla: Musk's ownership of and outspokenness on X (formerly Twitter) is routinely controversial. That "certainly makes people uncomfortable," said a rival CEO. SpaceX is still leading the pack, though. It launched its Falcon 9 rocket nearly 100 times in 2023, a "blistering pace" for the industry.
Tesla's diminished bottom line is not affecting Musk too badly, however. After the layoffs were announced, said The New York Times, the company asked shareholders to vote on a $47 billion pay package for its CEO, "the richest pay package in U.S. corporate history." A federal judge in January struck down an earlier version of the package, saying it was created by "overly compliant Tesla directors." The new package probably will set off a "bitter battle among investors and governance experts" over whether Musk deserves so much compensation.
The reaction
Tesla's problem is that it lacks "any clear sense of what it makes or who its core audience is anymore," Kevin T. Dugan said at New York magazine. The company is ending production of its relatively cheap Model 2 and turning instead to self-driving robotaxis. That might be a bad bet. "For Tesla to focus on this now, while its core business is in obvious trouble, is hard to understand." It makes more sense, though, when you realize Musk is also devoting attention to SpaceX, X and Neuralink. Those companies at least have clearly defined missions. Shifting from cars to taxis, though, "looks less like a considered plan than a chaotic attempt to regain some glory."
Musk has said Tesla will unveil its robotaxi on Aug. 8. "It'll either be a huge deal or miss," said Barron's. Musk's many critics are betting on a miss. Tesla's recent track record includes both the problematic Cybertruck — the company recalled the vehicles on Friday due to a sticky accelerator pedal — and a wrongful death settlement involving the company's autopilot technology. Plus, Musk has a history of making promises that did not entirely pan out. "Remember when Tesla unveiled a robot with a guy dancing in a robot suit then later unveiled a robot that couldn't stand?" Mashable said. But Tesla has a long history of surviving its stumbles. The question now is whether Musk can do it again.
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Joel Mathis is a freelance writer who has spent nine years as a syndicated columnist, co-writing the RedBlueAmerica column as the liberal half of a point-counterpoint duo. His work also regularly appears in National Geographic, The Kansas City Star and Heatmap News. His awards include best online commentary at the Online News Association and (twice) at the City and Regional Magazine Association.
-
5 highly educational cartoons about student protests
Cartoons Artists take on apolitical camping, the National Guard, and more
By The Week US Published
-
French schools and the scourge of teenage violence
Talking Point Gabriel Attal announces 'bold' intervention to tackle rise in violent incidents
By The Week UK Published
-
On the trail of India’s wild lions at Sasan Gir National Park
The Week Recommends The sanctuary is a 'roaring' conservation success
By The Week UK Published
-
Musk clears Tesla self-driving hurdle in China
Speed Read The Tesla CEO won China's approval to introduce Full Self-Driving (FSD) cars
By Peter Weber, The Week US Published
-
American Airlines pilots are warning of a 'significant spike' in safety issues
In the Spotlight The pilot's union listed 'problematic trends' they say are affecting the airline's fleet
By Justin Klawans, The Week US Published
-
Tesla cuts prices in 'intensifying' EV war
Speed Read Electric vehicle giant has struggled in the face of weakening demand, competition from China and technical setbacks
By Arion McNicoll, The Week UK Published
-
Controversy is brewing over a lawsuit involving Hermès' luxury bags
Talking Point The lawsuit alleges the company only sells bags to people with a 'sufficient purchase history'
By Justin Klawans, The Week US Published
-
The wine industry is getting pressed as young people drink less
Under the Radar The once-dominating drink is not aging well
By Anya Jaremko-Greenwold, The Week US Published
-
Brazil accuses Musk of 'disinformation campaign'
Speed Read A Brazilian Supreme Court judge has opened an inquiry into Elon Musk and X
By Rafi Schwartz, The Week US Published
-
The largest insurance company payouts
In The Spotlight Fights over insurance have been in the spotlight following the collapse of the Francis Scott Key Bridge in Baltimore
By Justin Klawans, The Week US Published
-
Disney board fends off Peltz infiltration bid
Speed Read Disney CEO Bob Iger has defeated activist investor Nelson Peltz in a contentious proxy battle
By Rafi Schwartz, The Week US Published