Tesla is experiencing one of its worst sales slumps, with global vehicle sales plummeting 13.5% in the second quarter compared to the previous year. This decline follows a 13% drop in vehicle deliveries during the first quarter. The electric vehicle pioneer is facing stiff competition from rivals such as General Motors and China’s BYD, who have been rolling out high-tech vehicles and capturing market share. Additionally, the looming threat of Congress withdrawing U.S. tax credits for electric vehicles has added to the challenges, particularly as consumer preferences shift back towards traditional gasoline-powered cars.
Despite these challenges, Elon Musk remains undeterred. In April, he urged investors to look beyond the immediate hurdles, stating, “I’d encourage people to look beyond the bumps and potholes of the road immediately ahead of us. Lift your gaze to the bright shining citadel on the hill.” Musk’s vision for the future is centered around self-driving taxis and humanoid robots, marking a significant shift in the company’s focus.
Although three-quarters of Tesla’s approximately $100 billion revenue in 2024 came from car sales, Musk has been assuring investors that his attention is now on transforming the company through autonomous vehicles and robotics. Last year, he halted development on a new affordable model, the Model 2, priced at $25,000. When questioned about reviving this model, Musk indicated that Tesla is working on a version called the Cybercab, which will lack steering wheels and pedals. “I think having a regular $25,000 model is pointless. It would be silly, like it will be completely at odds with what we believe,” Musk explained.
The stainless steel Cybertruck, Tesla’s only new model in the past five years, has not been selling well. Earlier this year, executives announced plans to reduce prices on the current lineup, with Lars Moravy, vice president of vehicle engineering, stating, “Monthly payment is the biggest differentiator for our vehicles.”
Investors are banking on Musk’s vision, maintaining a stock market valuation of nearly $1 trillion based on his promises. Many Wall Street analysts suggest that the car business is worth less than $100 per share, significantly lower than Tesla’s current share price of around $300. “Most investors value Tesla’s core auto business at between $50 and $100/share,” noted Morgan Stanley analyst Adam Jonas in a May research report.
Despite Musk’s enthusiasm for Tesla’s growth prospects, the company’s car business is currently struggling. Tesla’s profit plummeted 71% in the first quarter, with the company managing a $409 million profit only due to selling $595 million in regulatory credits to other automakers. Analysts expect a roughly 10% decline in sales and a nearly 20% drop in profit when Tesla reports its second-quarter earnings on July 23.
The challenges facing Tesla’s car business have intensified this year, even after Musk took time off from his White House duties to focus on the company. Trade disputes have created uncertainty over the availability of rare-earth minerals from China, complicating Tesla’s supply chain, which relies on parts from Canada and Mexico. Moreover, consumer demand for electric vehicles has weakened, with overall EV sales in the U.S. dropping around 7% in the second quarter, according to Cox Automotive estimates.
Tesla’s brand has also been impacted by Musk’s political activities, which have alienated customers across the political spectrum. The Tesla CEO stepped down from his role overseeing cost-cutting efforts at the Department of Government Efficiency at the end of May, around the time Tesla board members reached out to executive search firms and some pressed Musk to spend more time at the company.
The company has experienced turmoil in its executive ranks this year, with Tesla parting ways with Omead Afshar, a key lieutenant and confidant of Musk, last week. Afshar had overseen sales and manufacturing in North America and Europe since last fall and will be replaced in part by Tom Zhu, who had previously relocated to China to help the company compete in Asia.
Meanwhile, Musk has been focused on the rollout of a robotaxi service in Austin, Texas. On June 22, he was seen celebrating with the robotaxi team around a conference table covered with pizza boxes and Diet Coke. Unlike Tesla’s EV business, Musk is not a pioneer in self-driving cars and is seeking to catch up to Alphabet’s Waymo, which already operates hundreds of robotaxis in multiple cities.
Musk believes the robotaxi program could potentially add $5 trillion to $10 trillion to Tesla’s market cap. Last week, the company demonstrated a Model Y autonomously delivering itself from Tesla’s Austin factory to a customer’s home about 30 minutes away.
In Tesla’s recent impact report, the company showcased a vision of the future where autonomous vehicles zip around a solar-powered city, and Optimus robots assist with various tasks. The report highlighted a new promise for how robotaxis and Optimus fit into Tesla’s mission: “We believe autonomy will save lives, time and money while improving quality of life for everyone.”
