Tesla is going through a difficult time. The American manufacturer of electric cars saw its sales decline and its profits melt like snow in the sun in the first quarter of 2024. Cornered, billionaire Elon Musk announced in April that he wanted to accelerate the deployment of a low-cost vehicle, while the Competition from Chinese manufacturers is becoming more and more pressing. In the fourth quarter of 2024, the ambitious BYD took over its place as the largest seller of electric cars in the world.
To continue its development in its three American, European and Chinese markets, Tesla has started work on its second battery factory in Shanghai while protests continue to rage in Germany, where it plans to expand its site near Berlin. . For the lecturer at the University of Bordeaux, Bernard Jullien, the course to be taken for Tesla will be “very perilous”.
L’Express: Sales, profits, stock prices… Tesla’s performance is at half mast. Its boss Elon Musk announced the layoff of 10% of the workforce. Is this new crisis the consequence of the price war initiated by Tesla? Is it due to the slowdown in the electric market or does it have deeper roots in the company?
Bernard Jullien: This is actually not the first crisis that Tesla has gone through. Each arouses the fear of observers, who wonder if the group will be able to pass the milestone. I have to admit that I was one of the skeptics when Tesla moved from the high-end Model S to the more accessible Model 3 and Y. But they succeeded. In my opinion, what sums up the electric car market and the fate of Tesla today is commoditization.
The market has normalized: there is more supply than demand. Competition is fierce, which is reflected in prices. As the market is tighter, customers may be more demanding. As a result, the favorable market that made Tesla successful is being marginalized: until now they have been targeting rather wealthy customers who are convinced by their speeches. They have also benefited from public policies in Europe as well as in the United States with the arrival of Joe Biden. This allowed them to occupy a position of rentier in the electric sector. Without being a monopoly, Tesla had the capacity to behave a bit like Apple in the telephone market. Today, they must capture a broader customer base that is much less enthusiastic about their promises. Which raises a lot of questions.
That’s to say ?
One might wonder, in this context, whether Tesla can afford not to have physical distribution networks and such a limited range. They perhaps hope to maintain their positioning like Apple. Otherwise, they will have to deal with a diminishing differentiation between electric vehicles. Tesla has managed to make the difference against Volkswagen’s ID3 and the Renault Megane: will they be able to do the same in lower price segments, against the R5 and the Citroën C3?
To preserve their lead, they have already had to sacrifice a lot in terms of price. If they want to continue to crush the match, they will still have to sacrifice several thousand euros per car, which is not very well received by investors. Tesla must choose among its objectives. Until now, they could be profitable, growing strongly and benefiting from an insane stock price. From now on, they are a bit like everyone else and cannot have everything and the opposite of everything.
In April, Elon Musk refuted the idea that Tesla was giving up on bringing an affordable electric vehicle to market, although he did not provide details on the vehicle he might offer. Does Tesla have the means to offer a competitive offer in the face of Chinese competition that is more efficient than ever?
They are basically faced with the same difficulties as on previous occasions, with equations to solve in terms of industrial and commercial costs. The challenge is all the more complex as Tesla’s range is small: in the event of failure, they are not really able to compensate with other products. Not to mention that Tesla’s most serious competitor is BYD. However, BYD not only benefits from colossal state support, but also controls batteries. On the other hand, Tesla has certainly worked extensively on the integration of batteries into its supply chain and its vehicles but depends on suppliers to produce high-performance cars. All this makes the course very perilous for Tesla.
Tesla wants to intensify its efforts in autonomous cars, at a time when the rest of the car manufacturers are focusing their efforts on electric vehicles. Isn’t the bet risky?
In my eyes, this is more of a diversion on the part of Elon Musk. It is true that in California, the capacity to operate robotaxis is greater than in the depths of the United States and Europe. But what makes Tesla successful is its vehicles and its ability to sell them! The group’s ability to project itself was important in its valuation trajectory on the stock market, but it is today reduced to very prosaic questions and must prove its ability to sell cars in a less favorable context than the one in which it surfed in recent years with the Volkswagen affair, then the return of Washington to the Paris agreement.
One of Tesla’s strengths is also its position in China. What is its future in the Chinese market, as the country faces a economic crisis and that national manufacturers are gaining strength?
It is not impossible that Tesla will suffer the same fate as the German manufacturers in China. The group has been able to hold its own against Chinese manufacturers on high-end vehicles, but its dominance is already fading on more accessible cars like the Model Y and 3. It will have to fight to stay at the top of sales.
The very controversial positions ofElon Musk can they weigh on the brand image and dissuade buyers from placing orders with Tesla? The majority of buyers of electric cars are, for example, made up of Democrats in the United States…
The auto industry couldn’t be more political. Considering that the electric car is an opportunity to carry out creative destruction with a lot of destruction and little creation, as Elon Musk does, carries a lot of risks. In fact, electricity was used as a tool for industrial rebirth by Joe Biden and it was not Tesla that he wanted to give activity to, but rather to the historic American automobile industry and to that who dealt with the unions.
For several months, Tesla has been the subject of a vast revolt in Europe, particularly in Germany, where the project to extend its Berlin factory is strongly criticized. Is this protest likely to slow down its development?
Elon Musk can continue to insist on collective agreements and labor law, but he runs the risk of running into disaster. There is no reason why Europe should not have the same policy as Joe Biden towards Tesla.
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