On April 28th, Business Insider (BI) recently published an article titled "Elon Musk just set Wall Street up for one of his classic head fakes," pointing out that Tesla's instability is mainly attributed to Elon Musk's management and decisions. The company needs significant reforms starting from the leadership to address the ever-changing market environment and customer demands.
The article mentions that Musk failed to devise effective strategies during Tesla's golden age to withstand the global electric vehicle market's price wars, leading to the current financial pressures and market share losses. Musk's indecision in product strategy has also been criticized.
The article emphasizes that Tesla requires a more focused and pragmatic leader, rather than relying on Musk's charisma and past successes with autonomous driving and other high-tech gimmicks. The author believes that Tesla is not only facing technological challenges but also increasingly fierce competition from China and traditional automakers. Tesla's market share is sharply declining in China, indicating the need for a reassessment of its strategy in the global electric vehicle market. Tesla's future demands more innovation and rapid responses to market needs, rather than just depending on Musk's personal charm and past achievements.
Tesla is once again in crisis. Despite significant price cuts, the company's electric vehicle sales are slowing down. Tesla is laying off over 10% of its workforce, affecting 14,000 employees from Shanghai to San Jose, including both frontline workers and executives. Additionally, the company has to recall all delivered Cybertrucks and is facing an increasingly unstable position in key markets like China.
The current challenges facing Tesla are primarily attributed to Elon Musk, and only his exit can save the company. In recent years, although Tesla seemed unstoppable, Musk failed to formulate effective strategies during its peak to enable the company to withstand the intense price wars in the global electric vehicle market. Currently, Tesla is burning cash, losing market share, and has more inventory of old products than ever before.
This Tuesday, Tesla released its first-quarter financial report. Despite investors bracing for the worst, the company's overall performance fell below expectations. Earnings per share were $0.45, lower than analysts' expected $0.52. Due to Tesla's focus on artificial intelligence research and capital structure improvements, free cash flow decreased by 674%. Gross profit declined by 18% year-on-year, with gross margin dropping from 19.3% to 17.4%. If Tesla were likened to a car, it seems to be showing signs of malfunction.
Tesla's current challenge is not how to overcome the "production hell" or "delivery hell" of new models, as they have already experienced these. The issue now is the lack of a clear development direction. If a company invests in autonomous driving cars or outdated models that are not ready for mass production, no amount of cash will help.
Musk seems to have realized this. Although Tesla had announced plans to launch the $25,000 Model 2 to meet the market demand for affordable electric vehicles, Reuters reported earlier this month that the project had been canceled, despite Musk's denial. After investors became aware of this, Tesla's stock price plummeted. Given investors' clear response, Tesla announced in the financial report its plans to accelerate the production of "more affordable new products" by 2025. Despite the poor performance, the company's stock price has risen by nearly 20% since the report was released, with analysts and investors appreciating this move. Musk displayed an unprecedented performance in his speech, but everyone following Tesla knows we have seen his acts before.
The delays in Tesla's product deliveries have become a well-known fact, to the point where people are skeptical of any timelines the company announces. Even Tesla's most loyal shareholders like Ross Gerber of Gerber Kawasaki are skeptical of Musk's commitments. Following the financial report, Gerber stated in an interview that he "can't rely on" Tesla's timelines anymore. During the earnings call, Musk vaguely mentioned plans to expedite the production process, with more time spent discussing his grand vision of Uber-style autonomous taxis.
Tu Le, founder of China-based automotive consultancy firm "Sino Auto Insights," stated that it would take at least eight to nine years for autonomous taxis to be operational, saying, "I think they will say they have succeeded, but this is the best-case scenario. I am already optimistic."
When Tesla was the only company producing high-quality electric vehicles, delays were not an issue. But the situation is vastly different now. Musk does not have eight to nine years to save Tesla. While his vague promises have once again captured investors' attention, they have not alleviated the company's current pressures. On one hand, Chinese competitors can produce cars at much lower costs; on the other hand, traditional automakers are relying on selling hybrid models to address the slowdown in electric vehicle demand. Tesla is caught in between, struggling to cope. The company needs a serious and pragmatic leader, without the gimmicks of autonomous driving, without exaggerations, without the problematic Cybertruck, without mundane tweets, and certainly without the casual use of ketamine - essentially, without Musk. Tesla needs a focused and highly efficient leader who can deliver the Model 2 on time without significant delays. On Tuesday, Musk mentioned the recent round of layoffs, stating that Tesla needs to undergo a restructuring to enter a "new growth phase." He is right; Tesla indeed requires a major overhaul, starting from himself.
Tesla's future didn't have to be this awkward. In 2020, the company reached its peak. The Shanghai factory started producing cars with lower costs and higher profit margins; at the same time, it built Gigafactories in Germany and Texas; sales were higher than ever before; years of hefty profits led to a strong rebound in the company's stock, exciting investors.
But what did Musk do during those glorious days? He sold a large amount of Tesla stock to acquire Twitter, despite initially wanting to back out, he was eventually forced to complete the deal. He also blew up quite a few rockets, implanted brain chips in a group of monkeys, walked into the Twitter building with a flamethrower, and added several CEO titles. However, at Tesla, Musk only delivered about 4,000 Cybertrucks, each of which was later recalled due to accelerator pedal issues, squandering all the goodwill the company had built among its core customers.
Despite Tesla's significant achievements in recent years, it is evident that Musk should have spent more time on Tesla. The company failed to strategize for the chaotic period in the nascent stages of the electric vehicle industry. While the company has been striving to streamline and cut costs over the years, these strategies have not been sufficient to offset the negative impacts of price reductions, weak demand, and significant capital expenditures.
A truly visionary CEO would leverage Tesla's advantage in the electric vehicle market. They would conduct research, clearly understand the changing needs of early adopters post-purchase; they would know what kind of buyers to expect at each stage of the market, and what kind of cars these buyers desire; a truly visionary CEO would undoubtedly cater to the customers' needs. In November last year, pricing analyst Navdeep Sodhi from Sodhi Pricing Associates admitted that Tesla should advertise to inform the public about the cost advantages of its electric vehicles, such as fuel savings. Advertising could also help alleviate concerns about range anxiety, among other issues. However, Tesla laid off its entire marketing team this month.
Analysts have long warned Musk that competition is on the horizon, not just from traditional automakers but also from the Chinese market that facilitated Tesla's success. China has consistently supported Western companies entering the local market to foster competition, and once Chinese competitors catch up, the scales tip in favor of local companies. Coupled with China dominating the entire battery supply chain from mining, metal refining to battery manufacturing, this further enables Chinese electric vehicle manufacturers to produce new cars at extremely low prices. This places Tesla at a disadvantage in one of its most crucial markets, with Tesla's share in the Chinese automotive market dropping from 10.3% in early 2023 to 6.7% in the fourth quarter.
To maintain its lead, Tesla should have focused on producing the Model 2, attracting more customers by lowering prices. However, Tesla halted innovation, and the Model 2 remained unrealized. By the time Musk truly realized the need to launch an affordable Tesla for the masses, it may have been too late. Tesla failed to boost sales by introducing an impressive low-cost new car, instead attempting to increase sales and demand by sporadically adjusting prices of existing models. This strategy did not yield the expected results. According to the financial report released on Tuesday, Tesla's automotive revenue decreased by 13% compared to the same period last year, and the automotive gross margin dropped from 18% to 14.8%.
For years, Tesla has been a "growth" company, challenging traditional automakers as a rising star. However, the company has now entered a new development stage, becoming a mature large corporation that requires more funding, regulations, and focus for sustained growth. Musk has never rested, but post-2020, Tesla no longer appears as a place of continuous innovation but more like a place to make money for Musk and do what he wants. Perhaps he finds it boring, perhaps he is distracted, but in any case, Musk has long ceased to push Tesla to its limits.
During the earnings call, Musk made countless excuses for the poor performance this quarter: the Red Sea event, the arson at the Berlin factory, the upgrades at the Fremont factory, and so on. He claimed that Tesla is not an automotive company but an artificial intelligence robotics company. He talked endlessly about turning Tesla into a self-driving service like Uber but refused to address any questions about the Model 2. Musk rambled on, avoiding discussions on how to deliver affordable electric vehicles. Investors have been fooled by him before, and now they are falling for it again. This appears particularly awkward as Tesla and the entire electric vehicle market are in vastly different situations.
While Musk appears to be pushing for the production of the Model 2, driving up the company's stock, shareholders should be more concerned that his distractions over the years and numerous projects mentioned might lead to Tesla's resources being wasted on other endeavors, such as AI that mimics his voice, turning X into a dating app, or creating another superficial clownish model. If the Model 2 does not hit the market soon, Tesla's foreseeable future in the fiercely competitive global electric vehicle market could be one of defeat. Forget about growth; the company that was supposed to be the American electric vehicle giant now needs to address survival.
When Musk entered the electric vehicle arena, Tesla was the sole player, with the U.S. interest rate at 0%, and most people viewed Musk as the "Iron Man." However, times have changed, with China emerging as a major player in electric vehicles, traditional automakers seeking a piece of the pie, and interest rates remaining high, leading half of Americans to now see Musk as a super-villain from "Superman." Tesla's leadership needs to adapt accordingly; otherwise, they risk falling behind.
