Analysis: Could Elon Musk's Telsa Be Out Of Business Within 10 Years?

The second quarter of this year was a jackpot-smashing time for Tesla TSLA. According to data from Cox Automotive, Tesla was not only the top-selling brand in the U.S. electric vehicle market (EV), but it was also the top-selling luxury brand with sales volumes that outpaced the likes of Cadillac and Mercedes-Benz.

To its credit, Tesla has been in the right place at the right time. During the years when many people viewed EVs as a solution without a problem, Tesla doggedly focused on design and technology with the goal of creating an EV that scored in terms of style and substance. As a result, Tesla has been far ahead of the rest of the auto industry in becoming the brand that is synonymous with EVs.

But at the risk of being negative, how long can this last? Historic corporate trends, unfolding market situations and a crass reality check are pointing to a near-future that could be the proverbial downhill road for the company. Indeed, if situations unfold with an acute depth and speed, is it possible that the Tesla we know today will not exist within 10 years from now?

Let's consider four key elements that are not pointing to a copacetic future for the company.

The Fate Of Innovators: Any student of industry will recall how too many groundbreaking companies that were first to arrive within nascent industries either became marginalized or vanished shortly after creating a new business opportunity.

Consider the list of industry pioneers who set the stage before being shunted aside: The Biograph Company (the first American movie production studio), Admiral (the first major television manufacturer), Icelandic Airlines (the first budget air carrier), Betamax (the first home video format, made by Sony SONY), CompuServe (the first online service provider), The Sync (the first online video platform to present contemporary feature films), Napster (the pioneering digital audio distribution platform) and MySpace (the first social media platform to become a cultural phenomenon).

The problem with many companies first out of the proverbial gate was their inability to compete with the late-arriving but well financed competition – for example, RCA quickly outmuscled Admiral among television manufacturers while Facebook overpowered MySpace as a consumer favorite. Other companies failed amid situations their business structures could not absorb – for example, the bootstrap-financed The Sync disappeared in the dot-com debacle that occurred before YouTube's appearance while Napster's failure to navigate the concept of copyright protection resulted in it being sunk amid the shoals of litigation.

Of course, this doesn't necessarily mean Tesla will follow the fate of these earlier pioneers. But the inevitable party-crashing by the major automakers leads us to our second consideration.

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A Bit Of Bad Planning: Tesla's dominance in the EV space has been predicated on the absence of the likes of Ford Motor Co. F, General Motors GM, Volkswagen VWAPY and the other major auto companies that are only now taking the EV concept seriously. Yes, these companies have a lot of catching up to do – and they will, because they have one thing that Tesla never had: massive manufacturing capacities.

Tesla has an anemic total of four manufacturing facilities for its vehicles, and two of them only went live earlier this year. In the event Ford, GM and the others decide to go full throttle with EV production, Tesla's market share will shrink precipitously as other models flood the market.

In fact, the shrinkage has already begun – Cox Automotive noted Tesla's dominance in the U.S. EV sector dropped to 66% in the second quarter, down 9% from the first quarter. And Tesla cannot claim to be the world leader for zero emission vehicles – according to Fortune magazine, BYD, the Chinese EV manufacturer backed by Warren Buffett's Berkshire Hathaway (NYSE: BRK-A), sold 641,350 new electric vehicles in the first half of 2022, a 315% year-over-year increase, while Tesla sold 564,743, a 46% uptick from one year ago.

Granted, the playing field between the two companies isn't entirely even – BYD's output includes hybrids and Tesla was hobbled earlier this year with the closure of its Shanghai facility during that city's COVID lockdowns. Nonetheless, Tesla's relatively limited manufacturing operations will never work in its favor.

Septic Sticker Shock: Cox Automotive reported that U.S. EV sales accounted for 5.6% of the total market in the second quarter, up from 5.3% in the previous quarter and up from 2.7% a year earlier. While that represents progress, it also means that approximately 95% of the cars on the American roads are traditional gas-powered models. EVs might dominate the headlines, but they don't dominate the highways.

One reason why this sector is still a niche is the pricing of the vehicles. Cox Automotive reported that "the average price for a new electric vehicle in June was more than $66,000, well above the industry average and more aligned with luxury prices than mainstream prices." That might not have been an issue when the economy was muscular and the bulls owned the financial markets, but in the current economy, people who are struggling to make ends meet and worrying about losing their jobs are not going to splurge on overpriced vehicles.

According to data from TheStreet.com, Tesla jacked up the price on its Model 3 sedan, long-range version last month from $54,490 to $57,990 while raising the price for the Model Y SUV/crossover from $62,990 to $65,990 and the price of the Model S luxury sedan increased from $99,990 to $104,990.

Last week, Tesla CEO Elon Musk fielded a question on Twitter TWTR on bringing down the prices on his car. His response: "If inflation calms down, we can lower prices for cars."

But that answer is disingenuous – during the time when inflation was not a concern and people were financially confident, Tesla made no effort to create an economical EV. Had the company's prices been comparable to the gas-fueled competition or even lower, more people would have been willing to try an EV, despite its shortcomings in driving range and the scarcity of charging stations.

The major manufacturers will be able to bring down prices on EVs when they start mass-producing their models. Once these vehicles hit the market, Tesla will have to cut its prices (and, by extension, profit margins), especially if the new EVs are superior in design and technology, or else accept marginalization as a luxury vehicle brand for a shrinking consumer base.

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An Elongated Problem: But what might be the final nail in the Tesla coffin could be the man who raised the company's stature and visibility.

Yes, Musk has more than 100 million followers on Twitter who can't get enough of his visionary proclamations, his facetious sense of humor and his advocacy of Dogecoin BTC/USD. But that cult following is not going to extend to lenders who are watching the chaos erupting from how he handled the acquisition of Twitter.

Even if Musk's army of attorneys can extradite him from the Twitter legal miasma with most of his billions still intact, he has hopelessly damaged his credibility with the financial community, and it is unlikely that he will be able to secure future debt financing for Tesla based on his mercurial and unpredictable behavior.

And since the Tesla board will make no effort to remove him as a flaming liability – even after the U.S. Securities and Exchange Commission fined Musk and the company for his outlandish 2018 tweet where he falsely claimed he was taking Tesla private for $420 per share – it appears the board would rather go down with their leader rather than exercise their fiduciary responsibilities to shareholders and install a chief executive who isn't the subject of multiple lawsuits and government investigations.

So, what can happen to Tesla 10 years from now? If it is still in business as a standalone entity, it is hard to imagine that its prominence will equal or surpass the current status it holds.

Perhaps it will need to merge with a more successful company – most likely from China – but that can only happen with Musk out of the corporate driver's seat. Musk will not play second fiddle to another corporate chieftain, so it would be up to shareholders and/or the Tesla board to kick him out. But given their fetal-level dependence on him, that seems unlikely unless a disaster of epic proportions hits the company.

Then, one cannot rule out market trends. If the Republicans gain control of at least one chamber of Congress this November, President Joe Biden's vision for expanding EV usage is effectively dead for two years. And if a Republican wins the White House in 2024, you can add another four years to the end of that pursuit.

Without federal subsidies – both for purchasing these vehicles and for the installation of charging stations – the U.S. EV sector will stagnate. While this occurs, the first wave of new and, most likely, lower priced EVs from other companies will emerge to steal Tesla's market share and drive down its revenue. Couple that with more legal and regulatory difficulties from Musk's inevitable corporate shenanigans, and Tesla's future might be dismal.

Of course, this is all negative speculation. And, hey, maybe Musk is already considering this voyage into the worst-case scenarios. After all, Musk is the man who famously said, "Really pay attention to negative feedback and solicit it, particularly from friends. ... Hardly anyone does that, and it's incredibly helpful."

Photo: Steve Jurvetson / Flickr Creative Commons

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