The vibes are off at Tesla

A week ago, it was safe to say Tesla seemed to be ending the year on a rough note.

Between reports of layoffs, losing momentum in China, crackdowns on its Autopilot driver assistance software, CEO Elon Musk’s disastrous ownership of Twitter losing both money and face and long-promised products like the Cybertruck and Roadster feeling perpetually MIA, Tesla seemed poised to enter 2023 with more challenges than it’s ever faced before. 

For a company that’s weathered as much turmoil in a decade as many automakers do in a century, only to become the most valuable car company on earth, that is saying a lot. 

This week, however, things felt even worse. 

On Tuesday, Tesla’s stock price—now half of what it was in October—slid to its lowest closing in years. This came after reports that it would reduce production at its crucial Shanghai plant in January for unspecified reasons, although it comes COVID-19 surges and lockdowns in China upend the car industry. Even used Tesla prices seem to be plummeting now. 

Meanwhile, on Tuesday, Musk was tweeting about “corporate journalism” and being open to Twitter buying Substack.  

Musk is inextricably tied to Tesla’s past, present and future. Those with a financial stake in Tesla—those who trust in Musk because he has delivered value in the past—are increasingly and vocally fed up, begging the CEO to turn his attention to the car company whose stock price remains his primary source of wealth. 

“It’s losers across the board,” Dan Ives, a tech analyst at Wedbush Securities, told The Verge last week. While Ives remains optimistic about Tesla’s stock price long-term, he has emerged as a vocal critic of the Twitter deal.

Tesla shares closed slightly up on Wednesday at $112, but the damage has been done. This week many observers have speculated the falling price of the stock, which Musk used as collateral for loans to buy Twitter, could force him into a margin call situation that sends the stock into a death spiral. 

Ives escalated his criticism amid Tuesday’s stock price rout. “At the same time that Tesla is cutting prices and inventory is starting to build globally in face of a likely global recession, Musk is viewed as ‘asleep at the wheel’ from a leadership perspective for Tesla at the time investors need a CEO to navigate this Category 5 storm,” he told The Street. 

Reuters also reported Wednesday evening that Musk sent an email to the Tesla staff, asking them not to be “bothered by stock market craziness” and that Tesla will be the most valuable company on earth, long-term.

Realistically, Tesla is in the middle of a rough moment. For now, it’s just a moment. But other car companies, not Twitter, will bring Tesla its biggest headaches in 2023.

For the first time, Tesla faces real competition. Volkswagen, Hyundai, Kia, Mercedes-Benz and almost every legacy company in between are gunning for would-be Tesla buyers. And Musk’s Extremely Online antics seem poised to send customers into the arms of competitors whose chief executives aren’t as eager to air grievances about people’s pronouns on social media. 

For Tesla, 2023 will be a year that will test its ability to remain a leader in the modern EV market it effectively created. It would be unwise to start writing the company’s obituary just yet. But even Tesla’s bulls say things need to change. For Ives and others, that starts with where Musk’s priorities lie.

“You’d have to go back to [Steve] Jobs at Apple, and Jack Welch at GE in the last 40 years to have any sort of similarities to where a CEO is so crucial to the story,” Ives said. “You’re talking about a modern-day Thomas Edison who’s going through a Howard Hughes moment.”

Musk could do much to restore investor and consumer confidence, but action of any sort has yet to be seen. “I think this could be course-corrected, but time is of the essence,” Ives said.

‘A sign of weakness’

At the beginning of 2022, Tesla forecasted 50 percent growth. Since then, it’s seen some headwinds that may affect that lofty goal, including increased materials costs and reported “total chaos” with the labor force at its Gigafactory in Berlin. 

Besides the COVID-related production slowdowns in China, Tesla is also facing increased competition from China’s homegrown EV companies, whose cars grow by leaps and bounds each year. (Despite branding himself as a “free speech absolutist,” Musk generally goes silent when asked how that squares with his huge ambitions for China.) 

Back home, Tesla has succeeded in delivering its first Semi trucks, albeit three years late. While this should open a whole new line of business for the automaker, it also comes at a time when companies like Daimler, Volvo, and Peterbilt are getting into the long-hauling EV space as well. (Even Nikola, whose founder was convicted of fraud, has managed to deliver more than 100 EV semi trucks this year.)  

Beyond that, Tesla has little new in the immediate pipeline, announcing delays and price increases for the Cybertruck while Ford and Rivian have EV pickup trucks on the roads right now. The new Tesla Roadster concept was shown way back in 2017, and both it and Musk’s promised SpaceX rocket thruster package seem highly unlikely to make a 2023 debut. And you can be forgiven if you’ve already forgotten all about that robot. 

There is hope coming in the form of a revamped Model 3 reportedly called “Project Highland,” according to Reuters. That update is expected to update the sedan’s design, reduce the overall parts involved and bring costs down, and it could provide some powertrain enhancements. But at the earliest, it’s pegged to begin production in Q3 of 2023. 

Given all of this, it’s understandable why even Tesla fans may be turned off by the Twitter stuff and may start to look elsewhere for their next EV purchase. 

“Tesla is off the table now, [which is] unfortunate since we want a smaller EV for around town and Model 3 is a great car,” said Aaron Dyer, who works in the energy space and is based in California, in an interview with The Verge. “It’s to the point where I’m about to sell our Tesla stock for a loss just to be done with him. Shame on us for making some money in the past off of that guy.”

It’s probably impossible to quantify how many Tesla buyers—both prospective ones and people who have placed orders—have turned away from the brand as a result. Last month, the Wall Street Journal reported that Morning Consult and YouGov research indicates Tesla’s brand is increasingly seen as partisan, falling out of favor with self-described Democrats as it rises with self-described Republicans. That represents a seismic shift for Tesla, whose green image has long been more associated with progressive buyers. 

Although Musk’s views may have plenty of support, from newfound allies in conservative media to ideologically aligned tech titans, it’s equally impossible to prove how that may translate to new business for Tesla. 

Some potential Tesla buyers may not care. After all, Twitter is far less used than many other social media platforms. Many simply want access to Tesla-specific features like its vast Supercharger network. 

Anthony Johnson is one of them. He works in the electric power space in Colorado, and purchased a Tesla recently despite a “long-time disdain for Elon and the things that come out of his mouth starting way back with the Thailand cave rescue thing,” he said. 

“Long story short, we ended up trading in the [Nissan] Leaf and purchasing a new Model 3 last week, despite our disdain for Elon,” Johnson said. “We justified it in our heads that we are supporting the thousands of engineers and employees working for Tesla, in spite of the CEO.”

Yet for all the calls for Musk to move on from Twitter, many with a financial stake still see Musk as crucial to Tesla’s future success. Perhaps it could be seen as the downside to hinging a company’s hopes on one person; maybe it’s proof that success in one arena won’t automatically equal the same in another. But when it comes to Tesla, many investors want Musk to appear back in the game.

“Musk is the heart and lungs of the Tesla story,” Ives told The Verge. “And that’s why the Twitter train wreck has had such an outsize impact on Tesla’s stock.”   

In a Twitter Spaces chat last week, Musk contended “there’s not an important Tesla meeting I’ve missed the entire time. I’m not totally missing in action” and wondered aloud if there was “anything I could have done in the last two months that would have helped with Tesla execution? I literally can’t think of anything.”

Tesla hopes to entice customers like Johnson and others with the announcement of rare $7,500 discounts on the Model 3 and Model Y through the end of the year, and offers for 10,000 miles of free Supercharging. Those price discounts on the car will carry over in 2023 in the form of renewed EV tax credits.

Still, the decision was called an unusual one by some auto industry experts. A premium brand that was once extremely in demand is now having to juice end-of-year delivery numbers with steep discounts, said Ivan Drury, the Director of Insights at car-buying website Edmunds. 

“This is a hefty amount of money we’re talking about per unit,” Drury said. “I think we’re seeing Tesla starting to have traditional automaker problems.” 

The competition heats up 

If Tesla is dipping into legacy automaker tactics, those same companies will be gunning for it hard in 2023. 

The cracks are already starting to show. S&P Global reports that while Tesla made up 65 percent of the EV market in the U.S., making it far and away the market leader, that number is down from 79 percent in 2020 and it’s expected to drop another 20 percent by 2025. 

“When you look at its 10 most cross-shopped brands, it’s not all direct competitors, either,” Drury said. “Lucid doesn’t show up yet. You don’t have Rivian on there. You have BMW, Ford, Hyundai, Kia, Toyota, Mercedes… very mainstream brands.”

All have EV offerings that directly compete with Tesla’s high-range, high-performance cars. That’s a big shift from the 2010s, Drury said, when most automakers offered “compliance cars” as EVs—typically low-range, electric-converted compact cars meant to meet Califonia’s tough requirements. 

“It was kind of a joke,” Drury said. “Established automakers really handed that market over because they had no faith in it. But now, they’re going full-throttle because they’ve seen there’s a large customer base.” 

In a few years, Tesla has gone from effectively zero direct competitors to facing the Mercedes EQ cars; BMW’s i4, i7 and iX; the Hyundai Ioniq 5 and Kia EV6; the Ford F-150 Lightning and Mustang Mach-E; and the Volvo-backed Polestar 2 and 3, just to name a few.

“This is an EV arms race,” Ives said. “Tesla is no longer the only game in town.”

That situation gets even more intense in 2023 and 2024 with the arrival of a range of EVs from General Motors like the Chevrolet Blazer EV and Chevrolet Silverado EV; the Hyundai Ioniq 6 sedan and Kia EV9 SUV; the Nissan Ariya; the retro Volkswagen ID.Buzz and more. Startups like Lucid and Rivian continue to ramp up production as well, and new players like the Fisker Ocean will seek even more of Tesla’s market share next year.

Drury added that deals have been hard to find on any of these brands’ EVs due to demand and scarcity. “Some of them have discounts, but they’re not throwing money at these cars,” he said. “If anything, the EVs they have are sold out already. They’re going for a premium.”

Tesla also faces non-EV options, especially as America’s charging infrastructure continues to lag. Drury said Edmunds’ data reports that for Tesla owners who trade in their cars, it’s a “50-50 split” between another EV purchase and a gasoline car. In many cases, he said buyers opt for plug-in hybrids instead.

Tesla goes into battle against these challengers with a lineup that is proven, but long in the tooth. 

In 2023, the Model S will be 10 years old and the Model X SUV will be eight years old. Both have received significant hardware, software, and feature upgrades since, often with over-the-air updates. The smaller Model 3 and Model Y continue to sell well. But both are at a point where most automakers would be doing heavy updates or replacing them with new models entirely.

“They have done a good job of keeping updates coming, unlike traditional automakers that typically wait for a new generation or a facelift to implement new technologies,” said Paul Waatti, the industry analysis manager for AutoPacific, an automotive marketing research and consulting firm. 

“Tesla just kind of rolls it out as it’s available,” he said. “Which has been great, but look at the vehicles. It’s the same look as it’s been since launch, more or less.” 

Don’t count Tesla out

Despite all of this, pundits, industry analysts and stock shorts have predicted the death of Tesla for years, and they’ve been proven wrong every time. 

Whether it was struggling to ramp up factories, “production hell”, or challenges rolling out new technologies that later defined the rest of the modern car industry, Tesla has found ways to silence all of its doomsayers. It still closed out Q3 with $3.3 billion in profits, up from $1.6 billion in the same period in 2021. 

Tesla is also not unique in some of its problems. Supply chain issues will likely persist into 2023, making the coming year’s new car market another difficult one for buyers. Rising interest rates, a frequent Musk target, affect the entire car industry. Inflation could put a damper on all new car sales, not just those from Tesla. The Supercharger network remains arguably Tesla’s “killer app” even as it becomes more available to non-Tesla cars in 2023. 

Additionally, the made-in-America Tesla models once again qualify for tax incentives in 2023, unlike many direct competitors. That could move the needle for many EV buyers.  

Drury sees this moment of Musk’s distractions, potentially worsening brand perception, aging products and increased competition as “a speed bump,” but one that will receive and require more attention than other problems the company has faced before. 

“They have such a long legacy now that it’s very difficult to imagine even a few things that can truly take the brand under,” Drury said. “We know there are still consumers who are deathly loyal, who have multiple Teslas in the driveway. They’ve built up so much.” 

Ives admitted it would be easy to throw in the towel on Tesla, given the horrific year the stock price has had. He still sees its long-term story of driving transformation in the auto industry as intact, but he said Musk’s worst habits can’t get the better of him in the process. 

“It’s been a Cinderella ride since 2018,” Ives said. “Now, for the first time, the back is against the wall and Tesla needs a leader. And that’s why for Musk, attention needs to stop being on Twitter. They need a pilot on the plane.”