Why is Tesla stumbling?

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

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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.