With competitors quickly catching up and new players entering the market, many are wondering if Tesla will be able to maintain its lead in the industry.
In this article, I’ll be going through Tesla’s performance globally, in the US and in China. As well as share my thoughts on Tesla’s latest earnings report.
Let’s go:
Tesla continues to hold EV market share globally
Before we look at Tesla’s most prominent markets (US & China), we should take a look at how Tesla is performing in the Global Market.
From the diagram above, we can see that Tesla has done well to hold its share of the market over the past 2 years.
Despite slipping in 2022, they have regained their position this Q1 with an almost 25% increase from 12% in 4Q 2022 to 16% in 1Q 2023. This comes as no surprise given that their 1Q 2023 sales increased by 36% YoY, no doubt boosted by the slashing of prices for both the Model Y and Model 3. Interesting enough, Tesla’s Model Y has also become the “best-selling passenger car model globally for the first time ever“.
What Tesla bulls should look out for would be the exponential growth of BYD over the past 2 years. Even now when I look around, there seems to be an increasing number of BYD’s on our roads as compared to Tesla. This once again comes at no surprise since BYD reported over 100% YoY sales in Q1 2023.
With Tesla’s position in global markets relatively stable, let’s look at Tesla’s performance in its key markets:
- China (as China remains the leader in the Global EV Market) and
- the US (which recently surpassed Germany to become the world’s second-largest EV market)
US EV Market is Heating Up
The US market is Tesla’s home ground and it would be paramount that they continue to retain their foothold in it.
However, as EV adoption continues to rise, they have found themselves surrounded by more competition, with even established automakers aggressively entering the fray and introducing new models to compete with Tesla.
Statistics show that while Tesla’s EV market share in the US has steadily been above 60%, this number is seeing some decline of late slipping from 70.5% in 2021 to 63.5%, according to data from S&P Global Mobility, which tracks registrations of new EVs.
It would seem that the competition is heating up both in terms of pricing and capabilities, hence the recent Tesla price cuts.
While these price cuts allow Tesla to remain more grounded in terms of their brands’ perceived value, some may interpret this as Tesla slowing losing their “prestige” status.
Evidently, it is still difficult to come to a firm conclusion on Tesla’s position as they continue to deal with slowing demand, macroeconomic tensions (Vehicle batteries are from China) and a distracted founder (Musk x Twitter Saga).
EV in China is still Booming, even for Tesla
I speculate that Tesla will likely continue to outperform in China. My thesis is as follows,
- With the lockdowns over and the economy back in full swing this year, the Shanghai Gigafactory has seen record numbers in terms of production. This will likely continue given that the zero-Covid policy seems long abandoned.
- Tesla Price cuts would continue to drive sales throughout the year.
- Tesla’s new Referral Program will likely drive short term sales. As part of the referral program, up to 7,000-yuan (US$983.66) which can be used to offset the car’s final payment for a limited time.
All factors taken into consideration, China is still the largest and fastest-growing EV market in the world.
Tesla’s 2Q23 earnings
At the time of writing, Tesla has fallen by almost 15% since their earnings report. Let’s explore what happened?
Here are the actual earnings in a nutshell:
- Revenue: $24.93 billion, versus $24.47 billion expected according to Refinitiv. [Beat]
- Earnings: 91 cents per share adjusted, versus 82 cents per share expected as per Refinitiv. [Beat]
- Net income (GAAP): S$2.70 billion, an increase of 20% from last year. [Beat]
At first glance, the earnings don’t look all that bad, given that other companies are certainly doing worst. So, why the 15% drop?
Unfortunately, the nail in the coffin this time round was to do with Tesla’s declining margins.
While deliveries were higher this quarter, operating margins came in at 9.6%, the lowest for at least the last five quarters.
Tesla explained in a shareholder deck that its lower margins in the second quarter resulted from reduced average sales prices “due to mix and pricing” of the cars it has been selling, and the cost of ramping up production of battery cells it designed in-house, known as the 4680 cells, among other factors.
Tesla shares dip after hours as earnings call disappoints
Overall, this earnings call was disappointing. It seems to lack any positive catalyst for Tesla both in the short term and long term. Neither did investors receive any assurances as to how Tesla intends to reverse its declining margins.
With unsatisfying updates on their Cybertruck and increasing R&D costs, it would seem that any investor looking for any “reversal” in the company would have to wait a while longer.
That said, it is undeniable that Tesla have established itself as a dominant force in the industry.
With their unwavering commitment to pushing boundaries and shaping the future of transportation, it is likely that Tesla will continue to maintain its lead in this rapidly evolving market.