Tesla will recall 200,000 EVs to address a problem with their backup cameras. The latest in a series of recalls comes as the automaker faces some serious challenges, including a slowdown in sales and earnings that led to a major sell-off of stock this week, wiping out $80 billion in shareholder value. Headlight.News has more.
Tesla sales rose 38% last year, but were expected to climb 50%.
Nearly 200,000 Tesla EVs will be recalled in the coming weeks to address an issue the National Highway Traffic Safety Administration described as “software instability.”
In this case, this can cause the rearview camera system to fail on some products equipped with Tesla’s popular — albeit controversial — Full Self-Driving technology. It’s the second recall Tesla has launched in barely a month, following the service action covering 2 million EVs with defective Autopilot technology.
And it’s not the only issue Tesla currently has with instability. The automaker took a major hit in the wake of its full-year earnings call on Wednesday afternoon. With Musk warning that sales growth this coming year could be “notably lower,” Tesla’s share price quickly plunged by 12%, its single-worst one-day decline in 21 months. The decline cost $80 billion worth of shareholder value. Since Jan. 1, meanwhile, Tesla’s market capitalization is down $210 billion.
Slowing growth, declining margins
Price cutting contributed to a 50% decline in 4th quarter margins.
The sales numbers Tesla reported Wednesday would look spectacular if it were any other manufacturer. Deliveries were up 38% for the year, and revenues were up 3%. But both figures fell short of expectations. Going into 2023, Musk had set a delivery growth target of 50%.
Another major concern was the automaker’s declining margins — which had been running at industry-high levels. During the fourth quarter they plunged by nearly half, to 8.2%. That, again, was a number most manufacturers, including the likes of profit factory Porsche, would die for. But it hinted at more trouble to come.
The figures reveal a series of issues, including growing competition both at home in the U.S., and abroad. Then there’s the broader slowdown in the EV market. In the American market, sales surged roughly eightfold between 2019 and 2023. But they’ve “flattened out” in recent months, according to J.D. Power, and Musk acknowledged this trend is likely to continue, at least in the near-term.
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The affordable EV
Musk effectively confirmed plans for an “affordable EV that could come in as low as $25,000.
One reason for the slowdown, according to industry watchers, is the lack of more affordable EVs, Cox Automotive putting the price of the average all-electric model around $60,000.
During the earnings call, Musk confirmed that Tesla aims to address this with new products now under development — though he sidestepped commenting on reports that the goal of the company’s “Redwood” project is to bring out a compact crossover starting at $25,000.
That would be well below what most of its competitors could manage, and give Tesla a clear leg up. But it would also risk further cutting into margins. For his part, Musk has said on several occasions that Tesla is developing new production methods that will slash costs and make such an affordable EV possible. But not everyone is convinced. While such a product could help kick start slowing EV sales growth, analysts and investors worry this could further slash back what have been the highest profit margins in the industry.
Growing competition
Tesla could soon add new assembly plants in both Mexico and India.
Dozens of new EVs came to market in the U.S. last year from brands as diverse as Audi to Volvo. That has been chipping away at Tesla’s market share. And, as Headlight.News has reported, there will likely be at least 50 more to follow in 2024. The situation is even more concerning in key overseas markets.
On the plus side, Tesla pulled off a major win in Europe last year, the Model Y crossover becoming the continent’s best-selling vehicle — a first for an EV. But, going into 2024, the competition is heating up even faster than in the States, with a wave of new products from Chinese brands like BYD gaining traction by targeting the affordable EV segment.
Dozens of new EV brands have been popping up in China, alongside established foreign and domestic marques. Tesla retained its crown as the Chinese market’s bestselling EV brand for all of 2024. But the year ended ominously, with BYD delivering 526,409 all-electric models during the fourth quarter compared to 484,507 for Tesla.
How low can it go?
The launch of the Tesla Cybertruck hasn’t gone nearly as well as Musk predicted four years earlier.
Anyone who has followed Tesla over the years knows that the automaker’s share price routinely rides the rollercoaster. Bad news triggering sharp downturns on Wall Street has regularly been followed by more upbeat results — buoyed by Musk’s traditional optimism. But, this time, the South African-born executive wasn’t able to muster his normal level of upbeat energy, adding to the concerns.
There are still plenty of Tesla bulls. When it comes to putting cars in EV customers hands, the automaker is doing “much, much, much better than domestic U.S. car companies,” said Gary Bradshaw, portfolio manager at Hodges Capital, a major Tesla shareholder.
Ryan Brinkman, an analyst with J.P. Morgan, has a very different take, warning there is “plenty of further downside potential. He has issued a revised $130 target per share, which would be down about 30% from Thursday’s close of $182.63.
More trouble ahead
Brinkman and others worry that Tesla may make additional price cuts this year, particularly to offset the loss of U.S. tax credits on some models due to the Inflation Reduction Act.
There are other reasons to be concerned, according to critics. Musk himself sounded an alarm when asked about the Chinese, on Wednesday describing its EV makers as “the most competitive car companies in the world.
Tesla’s new low-cost vehicle could begin production late in 2025, although Musk called that timeframe optimistic.
Among other things, they’re rolling out product in a wide range of body style and price segments at a pace Tesla can’t come close to matching. The automaker has introduced just one passenger vehicle since the Model Y, and expectations for the Cybertruck have fallen well short of its early promise.
The new recall, meanwhile, underscores long-running concerns about Tesla quality issues. Add the fact that critics continue to raise concerns about the safety of both the Full Self-Driving and Autopilot systems. Influential Consumer Reports has issued a preliminary analysis of the fix Tesla crafted in the Autopilot recall and dubbed it “insufficient in our preliminary evaluation.
Don’t write off Tesla
Despite the current concerns, it’s risky to write off Tesla, whether you’re a consumer, an investor — or a journalist. Its stock has so far always bounced back and, despite worries about slowing sales and falling earnings, there are still opportunities ahead.
Certainly, Musk seems to be going full steam ahead. There are more products to come, he promised this week. And the company is ready to keep growing its production base. That affordable EV is likely to come out of a new plant in Mexico, according to various sources, and may also go into a plant in India.
Tellingly, J.P. Morgan’s Brinkman is one of only eight analysts among the 49 following Tesla tracked by FactSet. Of the others, 22 are neutral on the stock right now and 19 remain bullish.
And, apparently, investors are starting to shrug off their concerns, as well. After a weak start, Tesla stock was again trading up again by midday Friday.
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