It’s been estimated around 30% of retail investors had a sizeable position in Tesla in 2021 (making up 10% of their portfolios). Tesla even in 2022 is essentially the 4th most popular stock for retail investors. So what gives?
In 2022, we’re seeing the start of the actual competition that Tesla will one day face in the EV market. The auto manufacturing business is usually a low margin business, so Tesla’s elevated margins can’t continue as the rest of the industry catches up. It’s just basic economics and math really. I predict in 2023 and 2024, we’ll see huge progress made by established automakers in their own pivots to EVs.
Some argue that Tesla’s shrinking share of the market won’t matter, since they will be scaling along with the higher demand. However this is not necessarily the case.
However what becomes abundantly clear already at the end of 2022 is while Tesla easily still the top-selling electric vehicle brand in the U.S., its dominance is eroding as more affordable models proliferate. But with so many EVs on the market, will it even matter?
Shockingly, Tesla plans to cut December output of the Model Y at its Shanghai plant by more than 20% from the previous month, two sources said on Monday. Shanghai is very efficient, so to cut by 20% means Chinese demand is drying up.
S&P Global Mobility reports Tesla’s market share of new registered electric vehicles in the U.S. stood at 65% through the third quarter, down from 71% last year. So even in its best market, erosion is already taking place, well before would-be rivals are ready to even begin the race.
BYD is already a leader in China's EV market, with an estimated 28% market share in the first five months of 2022 -- compared to Tesla's nearly 7% market share as of October, 2022.
I expect Tesla to have a global market share in the EV sector of around 12% by 2030.
Tesla's European EV market share fell from 11% to 5% in Q2
So maybe my prediction is even overly optimistic for Tesla.
It wasn’t so long ago Tesla was worth more than all other car makers combined:
This was on some wild assumption that Tesla was a technology company, not an auto-maker.
Tesla’s TSLA 3.22%↑ market cap is still $576 Billion, by itself based on a first-mover advantage in EVs and wildly expensive production capabilities. So what happens to its profitability as the rest of the sector begins to catch up?
Nobody can give a good answer to this, at least not that I have seen or read.
That in China or Europe Tesla appears to be fading is bad news for Elon Musk.
Tesla’s stock is down 54% year to date, it’s starting to take a toll on its hype momentum. The signs of Tesla’s invitable fall in market share are showing up in China, Europe and the U.S., all at once even in late 2022.
Tesla is a pioneer and its the manufacturer of the Model Y and Model S remains the benchmark for green vehicles. But what happens when Tesla’s stock actually corrects closer to mean reversion and intrinsic value?
Tesla as a premium brand first-mover still enjoys an enviable operating margin of 16%. BYD’s for example is just 3%. But for how long does this continue? As the likes of Toyota, VW, Ford, GM and others mature, Tesla will be under even more pressure.
Tesla is still a stunning success, and it’s indeed well on its way to delivering 1 million EVs this year as it reported 908,000 vehicles rolling off the line through the third quarter. That’s incredible, but it appears many of the legacy car manufacturers are catching up in their EV pivot faster than anticipated.
Ford reported a 103% increase in EV sales year-over-year in November. Data provided by S&P Global Mobility on Nov. 29 placed Tesla at the top of the EV market with a 65% share with Ford registering about 7% of the market. Kia was third at 5% and Chevrolet and Hyundai were next with about 4% each. That’s a growing diversification of the EV market.
Ford had other good news on Nov. 30 as it reported that it produced its 150,000th Mustang Mach E since the model began rolling off the assembly line almost two years ago.
Kia contributed its good EV news also on Nov. 30 as it reported its electric models posted a record-breaking performance with a 133% year-over-year increase in sales in November, according to a statement.
The U.S. is where Tesla is supposed to dominate, right? Don’t look now but here comes:
Ford
Kia
Hyundai
Chevrolet
Lucid, Rivian, GM, etc…
In China things are considerably worse with BYD really owning Tesla. There are also more competitors in China, way more.
Elon Musk's Austin, Texas-based company has seen its share of the EV market shrink from about 79% in 2020 to 75.8% in June 2022 to about 65% today as rival automakers continue to ramp up their factories. How fast will this trend continue in 2023?
The planned production cut comes after Tesla reported record sales in China for November. What does that mean? The output reduction was first reported by Bloomberg, which said the move was a reflection of sluggish demand.
Reuters was not able to determine the reason for the planned reduction in output at the Shanghai factory, Tesla’s largest production hub. Who can say anything objective about Tesla these days? And it’s been like this for quite some time.
Tesla is spending more to boost sales in China and it’s a brutal sign of things to come. The U.S. automaker has cut prices for Model 3 and Model Y cars by up to 9% in China and offered insurance incentives, which helped boost November sales of its China-made cars by 40% from October and by 89.7% compared to a year earlier.
Other car companies haven’t seen their pivot to EV really show their future trajectory yet, it’s still very early days in 2023 for the pivot to EVs. Think about it, while Tesla's top competitors in the U.S. hold small percentages of the market -- Ford F 2.11%↑ 7%; Kia, 5%; Chevrolet, 4%, Hyundai, 4% -- these companies and smaller ones are setting records at delivering EVs as they increase production.
The top automotive groups by plug-in electric car sales volume in Europe: Volkswagen Group - 17.5% share. Stellantis - 14.7% share (Peugeot brand at 5.7%) Hyundai Motor Group - 11.3 % share (Kia brand at 6.0%, Hyundai at 5.3%).
All it would take is for GM, Hyundai or Rivian to do really well in the U.S. in a surprising way in the 2020s, to really ruin Tesla’s market cap in the near future. It’s destiny in China and Europe, well the writing is already on the wall in the form of the data. And it’s as if all those retail investors are in denial or think Tesla will just dominante a bigger pie.
The truth is we don’t know how competitive Tesla will be when its real competitors like Toyota and the bigger firms catch up in its category. So who might those be? Well let’s look at actual sales in 2021:
Tesla’s made $74 Billion in the year ending September, 2022. So how much will it make when everyone has transitioned to electric vehicles? Will it actually steal market share from the dominant car companies and if so, how so?
Ford which makes nearly double what Tesla makes in annual revenue, has a stock worth $13, even while consistently topping $120 billion in sales. Their market cap is only $53 Billion. Tesla’s market cap is 10.8x that of Ford. Meanwhile Ford is in second place in the U.S. in EV sales already in 2022.
I’ll say it again, Ford reported a 103% increase in EV sales year-over-year in November. Where does Tesla end up if it’s losing 5-8% of market share per year starting in 2022? Probably not 10x more valuable than Ford.
Tesla’s vehicles were supposed to act like robo-taxis, this never really manifested. Tesla’s FSD has been some of the worst false advertising in recent memory. Whiel the product is defective, Tesla keeps upping the bill for access. Tesla vehicles come standard with an ADAS known as Autopilot. However, owners have been able to upgrade the system for versions with more features, for a cost. Tesla also sells Enhanced Autopilot and the so-called Full Self-Driving software. FSD continues to increase in price and is now $15,000.
I’ll admit when I look at the data, I’m a Tesla bear. I don’t mean to come off that way, but the stock market bubble was truly ruled by Tesla and Bitcoin, and until they both correct fully I don’t see market capitulation has occurred.
Tesla’s stock history is a bit suspect:
TSLA 3.22%↑ It trades at $182 today.
BYD is dominating in China, VW is dominating in Europe, if Tesla cannot maintain dominance in the U.S., what do it do? If Toyota hits EVs hard, what actually happens?
Toyota Motor unseated General Motors as the top-selling automaker in the United States last year, becoming the first manufacturer based outside the country to achieve that feat in the industry’s nearly 120-year history.
I remember this, because it occurred just when peak Tesla hype was occuring.
Between November, 2021 and April, 2022 was the period of peak Tesla hype, if we take the stock price in Excel as an empirical indication of that.
So do people buy less Teslas when Tesla is seen as a company on the decline some time in the future?
In 2021, indeed G.M., Ford Motor and Stellantis, widely regarded as some of the best value stocks, produced and sold fewer cars than they had hoped to in 2021 because they were hit hard by the chip shortage. Tesla’s advantage in the future of EVs are higher margins and more diversified global production. But do those advantages fade and when does their decline begin to become significant for Tesla’s total market share?
So for America it’s really waiting on GM and Toyota to compete with Tesla directly in EV sales. How long could that take? At least until 2026, I think. By then, Tesla’s market share in China is likely lower, much lower. Its prospects in Europe don’t seem to be much better long-term.
So outside of making useful robots, what exactly will Tesla be doing or Elon Musk trying to sell? Tesla’s weird backers include even Pension funds. Nah bro, you cannot be serious? No joke.
As of June 30, the Canadian pension fund held 230,061 Tesla shares. This increased to 690,183 after Tesla finalized a three-for-one stock split on Aug. 25. But three months later, CPP Investments has significantly reduced its holdings, owning 368,867 Tesla shares as of Sept. 30, according to a regulatory filing. This means that the Canadian fund slashed almost half of its Tesla stake in the third quarter. Oh no! But that’s terrible.
In fact since epic stock splits, Tesla and Amazon haven’t done so well. How does Tesla do in a real recession in 2023? Those are some expensive vehicles. The average price of a Tesla car is sort of expensive for those struggling with inflation, housing costs and the price of gas.
Here are the price ranges for each Tesla model: Model 3 $46,990–$77,990, Model Y $65,990–$86,990, Model S $104,990–$156,990, and Model X $120,990–$160,990.
So the average Tesla is over $102,000. No wonder their margins are incredible.
Can Tesla, one of the best growth stocks, compete with the likes of Toyota for an affordable family friendly EV? It’s not very likely, thus Tesla’s famous “margins” begin to dry up around 2025 I estimate. For Tesla to compete with companies with deep pockets becomes increasingly more difficult the further we go in time from 2022.
With Elon Musk’s behavior with Twitter, perhaps his “cult following” also begins to slow down in 2023 as he makes decidedly political choices for his reputation. He’s openly backed a Florida republican candidate for the next POTUS. Elon Musk is a colorful online character, but his more erratic behavior eventually could be problematic for Tesla’s brand reputation. I think in 2022 we are already seeing that, especially in China.
Tesla led China’s market for battery-powered electric vehicles in 2021, with an 18 percent share, easily outstripping its Chinese competitors Nio and XPeng (neither of which reached 4 percent, according to the research firm LMC Automotive). So what has happend in 2022?
So let this sink in: Three of the top five best-selling EV brands in Q3 2022 were from China. China’s importance in future EV sales is just huge.
Not so wonderful for Tesla.
Even VW in the end will beat Tesla in China.
If Tesla’s Model Y begins to perform badly in China, it’s investments there will become very problematic.
In a 2011 Bloomberg interview, Tesla CEO Elon Musk was asked his opinion on BYD Auto (originally called Build Your Dreams, 比亚迪), a company from Guangdong Province that was founded as a battery manufacturer in 1995. Musk laughed, and said, “Have you seen their car?”
BYD, with its stable P/E ratio and EV/EBITDA ratio over many years, is of course famous for being the company Warren Buffet invested in. BYD Motors is a Chinese stock that Warren Buffett has held for over a decade. He has begun selling the stock, realizing an approximately 4,900% return. Okay then!
The rise of BYD in China in 2022 shows just how quickly things can change in car sales. They know how to take a profit. In November, 2022, Berkshire Hathaway selling $145 mln of shares in China's BYD, filing shows.
Tesla is no longer the only game in town, and it sucks for Tesla investors. It will suck more in a few years even though Tesla fair value is still relatively high. time.