Tuesday's Market Minute: Tesla (TSLA) Auto Woes

The China Passenger Car Association announced that in 2022, 5.67 million electric vehicles & plug-in hybrids were sold in the country, over 4 million of which were all-electric. China is the biggest EV market by far: that 4 million figure is over five times the amount of EVs that were sold in the U.S. last year. The worldwide switch to electric vehicles continues, with more infrastructure built every day, and legacy automakers like Ford launching their own electric models beginning this year. Theoretically, the electric vehicle market expanding is great for Tesla—it’s one of the best-known EV brands and has built out plenty of charging stations. It also has a first-mover advantage—or does it?

GM and Ford switching to electric are powerful forces coming to take a bite out of Tesla’s market share. There are dozens of startups in electric as well, and China’s domestic car brands are holding strong as the Chinese market focuses more on home-grown products, like Warren Buffett-backed BYD. Tesla’s 4Q deliveries were only about 405K, disappointing Wall Street and capping off a difficult year (the stock fell around 65% last year). It has scaled back production in China and has slashed prices, with a Model 3 in China more than 30% cheaper than the same car in the U.S., and more in-line with other mid-range EVs sold in the country. This suggests that Tesla can’t compete as a luxury product, despite its aims for such a reputation. 

Tesla TSLA is also suffering from branding issues: Elon Musk’s well-publicized Twitter woes have helped tank the stock. But putting the CEO’s outsized presence aside, there have been a series of tragic accidents, with its vehicles allegedly slipping out of control, crashing, and even catching on fire. Federal regulators are investigating Tesla’s Autopilot feature—the National Highway Traffic Safety Administration announced its probe, which began last fall, is proceeding “really fast.” That agency could potentially order a recall down the road. Tesla doesn’t have the luxury of being the best-known brand on the market anymore, and more damage to its image in the eyes of consumers could hit much harder going forward. 

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