There was a time when it seemed like Tesla could do no wrong.
In just over a decade, the company transformed from a tech startup to a mass-market carmaker, investing billions of dollars in clean energy businesses and witnessing its valuation soar.
But now the company is grappling with declining car sales and fierce competition from Chinese brands, as well as issues with the highly talked-about Cybertruck.
Lower car sales have hit its revenue and dented its profits. Its stock has fallen by more than a quarter since the start of the year.
The company has slashed prices in key markets and is in the process of laying off around 14,000 employees – 10% of its global workforce. Those affected include senior executives and entire teams responsible for its highly respected supercharger network.
So, is all this just a bump in the road, or are Tesla’s wheels starting to come off?
“It’s about breaking the spell,” explained Elon Musk to a specially invited audience at Tesla’s factory in California in June 2012.
“The world has been under the illusion that electric cars can’t be as good as gasoline cars,” he said.
Musk spoke at the launch of the new Tesla Model S, a car he insisted would shatter that illusion. It was not an empty promise.
At the time, electric cars had a long-standing reputation as slow, uninspiring, and impractical vehicles with very limited range.
Although new models like the Nissan Leaf were starting to develop niche followings, they had not made much of a dent in the broader market.
The Model S was powerful, had sports car performance, and could travel up to 265 miles on a single charge. It wasn’t cheap, starting at $57,000 (£47,000) in the US for the lowest-performing version, but it certainly sent a message.
Since then, Tesla has launched four other models, including the Model X SUV, the “affordable” Model 3 and Model Y, and the Cybertruck.
Today, Tesla has large factories, called gigafactories, producing cars in Shanghai and Berlin, in addition to its original facility in Fremont, California, and several other sites in the US. Last year, the company delivered 1.8 million cars, showing that it has matured as a mass producer.
But according to Professor Peter Wells, director of the Centre for Automotive Industry Research at Cardiff University, that’s part of the problem. “When Tesla first emerged, it had exciting new products, a charismatic CEO, and looked very much like a pioneering entrepreneurial disruptor,” he explained.
But now, the company “is no longer a newcomer and disruptive upstart with an entrepreneurial spirit, but increasingly a player in the industry that has all the challenges that come with facing various competitors in the same market”.
Other companies, like China’s Nio, offer more appealing products, says Prof. Wells, while other Chinese companies like BYD offer good performance at lower prices. “Fundamentally, the world has caught up with Tesla,” he says.
There’s no doubt that competition is now fiercer than ever. After the diesel emissions scandal that hit Volkswagen in 2015, the company began allocating money to electric vehicles.
And as governments around the world started seriously considering bans on the sale of new petrol and diesel models, established manufacturers quickly followed suit. Customers looking for electric cars with good range and performance now have many options to choose from.
Meanwhile, in China, policymakers have for years seen the development of electric vehicles (EVs) as an opportunity to take a significant share of the global market and have promoted their development. The result is the rapid growth of brands like BYD – which surpassed Tesla as the world’s largest electric car manufacturer late last year.
At the same time, as the EV market has matured, subsidies to help consumers buy them have been reduced in many parts of the world. That may be one reason why the rampant sales growth of EVs in recent years has slowed – and why manufacturers themselves have had to cut their prices.
According to independent automotive analyst Matthias Schmidt, this has certainly affected Tesla.
“Finance ministers who previously enjoyed offering attractive incentives for the purchase of battery-electric vehicles in what appeared to be an empty market environment, with essentially only a Tesla or two on offer, are now tightly closing their wallets,” he said.
One market where this seems to have had a big impact is Germany. A subsidy scheme offering thousands of euros to reduce the cost of new electric cars was suddenly ended in December.
EV sales there dropped sharply in the first three months of this year, with Tesla experiencing a 36% decline compared to the same period in 2023.
The question now is whether Tesla can regain lost momentum. Chief Executive Elon Musk, ever the extremist, seems to be betting on the company becoming a leader in autonomous vehicles – provider of driverless robot taxis.
Last month, on his social media site, X, he wrote: “Not really betting the company, but fighting for autonomy is a very clear step. Everything else is like variations on horse and buggy.”
But Musk has been talking about the prospect of full autonomy for a very long time. In 2019, for example, he promised that within a year there would be one million Teslas on the road capable of acting as robot taxis.
The reality, so far, is very different. Tesla’s “Full Self Driving” package remains far from its name – still a “hands-on” system that requires the driver to remain vigilant at all times.
The pursuit of full autonomy does indeed fit with Tesla’s identity as a technology company, not a traditional carmaker. But Musk’s critics believe it’s just a smokescreen to divert attention from other problems.
Meanwhile, Tesla has cut prices to boost sales, and reduced costs and trimmed its workforce to improve its margins. As have other car companies.
