In July 2023, Tesla announced its Q2 earnings and revealed that it operates as a low-margin car company. To maintain sales, the company has continuously reduced prices, a strategy that CEO Elon Musk suggested will continue.
The recent earnings report is the latest confirmation that Tesla’s best days are behind it. Here are 2 big reasons why.
1) Legal Trouble
During July, two major scandals came to light. Reuters uncovered fraud related to Tesla’s car range, while Handelsblatt exposed a widespread cover-up of safety issues with self-driving technology.
The National Highway Traffic Safety Administration (NHTSA) has initiated recalls to protect customers from Tesla’s misleadingly named “Full Self-Driving” feature. Related investigations by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are ongoing.
These controversies might lead to stricter regulatory actions or even Musk’s resignation. They have already damaged Tesla’s reputation among consumers.
According to Consumer Reports, Tesla’s driver assistance technology ranks seventh among EV makers. Guidehouse Insights rates it last.
Tesla’s valuation could undergo a major reassessment as the weaknesses of its self-proclaimed “autonomy technology” become apparent.
Here is a list of Tesla’s ongoing legal issues:
- Securities litigation related to Musk “funding secured” tweet
The “420 Tweet” – A class-action lawsuit from August and September 2018 regarding Musk’s tweets about potentially going private
- Litigation relating to 2018 CEO performance awardWhistleblower allegations and retaliation
In 2019, Lynn Thompson sued Tesla for terminating his security contract after he reported the theft of US$37 million worth of copper and other raw materials to local authorities. In 2020, the case was stayed pending arbitration.
In November 2020, former Tesla employee Steven Henkes filed a lawsuit alleging he was fired by Tesla in retaliation for raising safety concerns about “unacceptable fire risks” in the company’s solar installations.
- Agreement misrepresented as loan
A Tesla Solar customer alleged in a 2020 filing that the company engaged in “bait-and-switch financing” for reporting his solar-financing agreement as “a massive loan” to credit agencies ,
- Bios Group lawsuit
- Full-Self Driving claim
In August 2021, a Tesla owner filed a complaint that Tesla “fraudulently concealed its engineering failures” in regards to its beta Full Self-Driving software
- Texas police complaint
In September 2021, five police officers submitted a complaint against in part Tesla for a crash involving Autopilot that left them badly injured.
- Sexual harassment at Fremont facility cases
- Fair Employment and Housing racism suit
- Autopilot fatality suits
As of February 2022, litigation is ongoing in three cases involving the use of Tesla Autopilot during a fatal incident: the cases of Walter Huang, Jeremy Banner, and Jenna Monet.
- Individual racism lawsuits
As of February 2022, litigation is ongoing related to Kaylen Barker and Marc Cage who both alleged racial-based harassment from their Tesla factory coworkers.
- “Whompy wheels” lawsuit
In February 2022, a lawsuit was filed against Tesla regarding a fatality involving suspension breakage (so-called “whompy wheels”).
- Sudden unintended braking class action
- Dogecoin racketeering lawsuit
- Deceptive Autopilot and Full Self-Driving advertising
- California Civil Rights Department suit
- Privacy intrusion allegations
That’s some serious volume.
2) Declining Competitive Advantage
Many other EV manufacturers now offer similar or better range, interiors, charging speeds, and quality. Consumer Reports ranks Tesla vehicles as below the industry average for reliability. JD Power’s 2023 survey confirms these findings.
Tesla’s once-popular Model Y now faces tough competition from EVs like Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, and Cadillac Lyriq, among others. Their Model 3 also faces strong competition in the sedan category from Volvo’s Polestar 2, BMW’s i4, and Hyundai’s Ioniq 6, among others.
In the high-end EV segment, Porsche Taycan outsells Tesla’s Model S, while BMW, Mercedes, and Audi’s latest models outperform Tesla’s offerings.
Hyundai’s IONIQ 6, an electric vehicle (EV), has been named ‘Car of the Year’ for 2023, putting it in direct competition with Tesla’s Model 3. With a starting price of $41,600 and a range of up to 240 miles, the IONIQ 6 is impressively positioned against the Model 3, which starts at $41,990 and offers 272 miles on a single charge.
Hyundai Motor Americas CEO Randy Parker confidently stated that the technology of the IONIQ 6 is unmatched, challenging the EV leadership of Tesla. This reflects a growing trend of established automakers expanding their presence in the EV market, with noteworthy new offerings showcased at the New York Auto Show. These include the Kia EV9, Nissan Ariya, Chevrolet Equinox EV, and Ram 1500 REV electric truck.
In addition to these upcoming models, solid EV options are already available in the market, such as Ford’s F-150 Lightning and Mach-E, as well as the forthcoming Chevy Silverado. This competition signals a shift in the industry as traditional gas-powered car manufacturers embrace the transition to electric vehicles.
Since hitting a high of $291.26 on July 19, Tesla’s stock price has been declining. This decline reflects the belief that Tesla’s dominant position in the EV market is being eroded.
Competitors from multinational automakers and Chinese brands are taking away market share. As a result, Tesla’s stock may eventually reflect the perception that it’s just another car company.