EV-making supergiant Tesla, Inc. (NASDAQ:TSLA) is going through a difficult time, as its production and deliveries experience a decline. As the company remains a “gold standard” when it comes to EV production, should investors take the leap in the hope of earning a reward?
EV Markets Experience a Slowdown
Although actual sales numbers are still growing, the growth in electric vehicle sales has certainly taken a hit. This pullback has manifested over the last year. According to BloombergNEF, all-electric passenger vehicles and plug-in hybrids increased 24% last year. While this is not a bad growth in itself, it is down from the 33% growth the industry had posted in 2023, and sales had more than doubled in 2021.
Overall, EV sales have forged higher to reach annual highs. However, Bloomberg estimates that China accounted for almost two-thirds of EV sales last year. This doesn’t help the EV industry in the U.S. and Europe.
Although the U.S. saw EV sales rise by 7% year-over-year in 2024, according to Cox Automotive, this was buoyed by sales rising in the fourth quarter because there was an EV-buying spree in anticipation of the Trump administration cutting tax credits after coming into power. In Europe, the shift towards EVs reversed as conventional cars grew their share.
In the U.S., the reason for the slowdown is clearly the concentration of charging locations around cities, as well as the cost of buying an EV. In Europe, the reason was the pullback in government incentives.
Growing Competition from China
China has been seeing solid growth in its EV sales for quite some time. According to Rho Motion, 17.1 million EV units were sold in 2024. This implied a 25% annual growth (largely aligning with the BNEF estimate). Of this growth, sales in China increased by 40% last year, while the U.S. and Canada markets grew by 9%, and the European market declined by 3%.
Now, the Western markets face a dilemma. They can either open up to more Chinese imported EVs, making these vehicles cheaper and more accessible, but doing this will undermine local EV makers. China has cheaper EVs, and manufacturers in the country have now unveiled next-generation battery technology.
Chinese EV maker BYD Company Limited (OTC:BYDDY) sold more EVs in Europe than Tesla in April. BYD registered 7,231 battery-powered electric vehicles (BEV) in Europe, while Tesla registered 7,165 units, as per a report by JATO Dynamics.
Now, Chinese smartphone maker (a recent entry in the EV-making space), Xiaomi, has unveiled its YU7 SUV, with a driving range of 472 miles on a single charge, which is higher than Tesla’s extended-range Model Y.
The Return of Musk
Opinions tend to polarize when it comes to Tesla’s CEO, Elon Musk, with some even stating that his political views have hurt Tesla’s brand image. Many investors were seemingly uneasy about Musk’s attention towards the Department of Government Efficiency.
Musk has now revealed that he will focus on his businesses rather than DOGE. He comes back to hold the reins of the company when Tesla is going through a downtime (we will get back to this later in the article). However, now Musk is facing cases filed in the U.S. relating to his role as the head of DOGE.
The Impending Launch of Robotaxi
In a CNBC interview, Musk confirmed that Tesla will have robotaxis on the roads of Austin, Texas, by the end of June. He also revealed plans to bring the vehicles to Los Angeles and San Francisco after the planned debut. The service will start with 10 vehicles on the road and then gradually advance if the launch goes well.
The full self-driving (FSD) unsupervised technology that Tesla has been promising for a long time will finally be on display. However, it remains to be seen how well the launch goes and how safe investors deem these robotaxis to be.
Alphabet Inc. (NASDAQ:GOOGL) has a head start in the FSD field over Tesla, as its Waymo subsidiary has been operating commercial driverless ride-hailing services. Waymo reportedly conducts 250,000 paid trips per week. So, there is already a significant competitor in the market for Tesla.
A Drop in Financials
Tesla has last reported its first quarter results for fiscal 2025. In that, it reported weak financials, stemming from a drop in its production and deliveries. Tesla’s total production dropped 16% year-over-year to 362,615 units. This was also the second straight sequential drop in quarterly production numbers.
Tesla cited updates relating to its Model Y across all four vehicle factories as partly reasonable for this but total deliveries also declined by 13% from the prior year’s quarter to 336,681.
Tesla’s total automotive revenues declined by 20% year-over-year to $13.97 billion, which led to a 9% drop in its total revenues to $19.34 billion. The company’s profitability also took a hit as a result of declining sales. Adjusted EBITDA declined by 17% year-over-year to $2.81 billion, while its non-GAAP EPS dropped by 40% from the year-ago value to $0.27.
Tesla’s stock is down by about 14% year-to-date. On the other hand, its price sits at 187.85x its forward non-GAAP earnings, which is quite stretched compared to industry standards.
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