The pandemic didn’t slow down the company as Musk, Tesla’s CEO, defied shutdown orders to restart production of EVs. It was a perilous decision linked to hundreds of coronavirus cases but one that cemented the company as the world’s most valuable automaker and Musk as the richest person on Earth.
“Tesla is worth a trilly willy!” Musk triumphantly declared in February 2022, referring to its trillion-dollar market capitalization. Weeks later, it was revealed that he was acquiring shares of Twitter and tying the fate of his “crown jewel” company to a struggling social media platform that had chronically underperformed compared to its peers.
While investors worried about how the Twitter purchase would absorb Musk’s attention, the CEO remained bullish, predicting Tesla would become the most valuable company on the planet, exceeding the valuation of Saudi state-owned oil firm Aramco and Apple combined. Musk continued to make bold claims about Tesla’s technology, with lofty promises that the company would deliver on its bet to unleash fully autonomous cars on the roads.
Fast forward to today, and neither of those grand predictions has come true. Tesla has fallen far from its days as a darling of Wall Street and is now battling a complex array of challenges that led to a grim earnings report Tuesday. Net income for the three months ended March 31 fell 55 percent to $1.1 billion from $2.5 billion a year earlier, while revenue fell 9 percent to $21.3 billion. Tesla, which has implemented steep price cuts over the past year to maintain demand blamed the decline at least partially on the reduced sale price of its vehicles. The company also said it has been ramping up production of its Cybertruck pickup and updating its Model 3, leading to a decline in deliveries as it produces the new version.
Ahead of Tuesday’s earnings report analysts called it a “make or break moment” for the EV maker as it struggles with falling sales, stiff competition from China and uncertainty over its prospects.
“I’m expecting a blood bath,” Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, said ahead of the earnings report. Musk “figured out how to take one of the best products in the world and make it unsellable.”
Tesla said this month it delivered 387,000 vehicles to customers in the first quarter, down 20 percent from the previous quarter and more than 8 percent from a year earlier. Tesla blamed part of that slowdown on a shift to early production of the next version of its Model 3 sedan, Red Sea shipping disruptions and suspected arson at its Berlin factory.
The company also told employees it had to cut 10 percent of its global workforce after a “thorough review of the organization.” In a layoff notice obtained by The Washington Post, employees were told that Tesla, which has a large presence in California and Texas and factories in Germany and China, is looking “at every aspect of the company for cost reductions and increasing productivity,” according to the email, which was shared with The Post. Two prominent senior executives — a top engineering executive and a vice president of public policy and business development — also announced their departures the same day the layoffs were announced. Lately, Tesla’s stock has been hovering at a 52-week low.
To allay concerns about stagnating growth and persistent price cuts, Musk said this year that Tesla was “between two major growth waves” as it pivoted resources toward the production of its next lower-cost vehicle, known as the Model 2. But Reuters reported this month that the company has scrapped plans for that car, stoking concerns about the future.
In response, Musk posted on X (his rebrand for Twitter) that “Reuters is lying,” but he didn’t elaborate. Instead, he posted that the company would unveil a fully autonomous robotaxi in August, echoing a promise he made in the past about its existing fleet of consumer-owned cars but one he hasn’t yet delivered. The plans for the autonomous car are thin on details and face steep technological and regulatory hurdles that have left investors confused.
“Tesla pushed electrification and created this momentum. But now their growth is definitely slowing down … and they haven’t had a fresh new product,” said Stephanie Valdez Streaty, director of industry insights for Cox Automotive.
Dan Ives, an analyst for Wedbush Securities, said Tesla needs to provide realistic goals and clearly lay out what products consumers and investors can expect in the future.
“Do NOT let the Street keep this guessing game as uncertainty is adding to the overhang in the story,” Ives said.
Tesla, for its part, has pulled itself out of the trenches before: As competing automakers were slow to recover from the covid shutdowns, Tesla was not only quick to reopen, it was less constrained by a chip shortage and supply chain problems. Tesla reversed its fortunes from years earlier by demonstrating consecutive quarters of profitability, hitting production and delivery targets and seeing the runaway success of its best-selling vehicle, the Model Y crossover.
It also distanced itself from the low-margin business of auto manufacturing, staking out a position as a tech company at the vanguard of artificial intelligence with its bets on Autopilot and Full Self-Driving. Those decisions propelled it to a valuation of more than $1 trillion at its peak in late 2021.
Still, while Tesla has seen much more “tenuous times,” Ives said this time feels more precarious.
“For the first time, many longtime Tesla believers are giving up on the story and throwing in the white towel,” he said. “The miscalculation of demand erosion in China has been a gut punch to the bull thesis, the Model 2 vs. Robotaxi debate has taken on a life of its own, major layoff including key assets for Tesla, and a global EV landscape that has turned Tesla from a Cinderella story to a horror show in the near term.”
Outside of Wall Street, the company is also facing challenges as regulators increase scrutiny of the company. In December, Tesla recalled 2 million vehicles after an investigation from the National Highway Traffic Safety Administration found its technology invited driver misuse. Tesla is also recalling nearly 4,000 Cybertrucks because of faulty accelerator pedals.
Several lawsuits threaten to cast its technology in an unflattering light, which could be a major blow for a company that is staking its future on a fully autonomous car. In court documents, Tesla says its user manuals and on-screen warnings make “extremely clear” that the driver must be fully in control while using Autopilot. Many of the upcoming court cases involve an element of driver distraction or impairment, which are difficult facts to prove when arguing that Tesla’s driver assistance feature is fully to blame.
In a surprising twist this month, the company settled a high-profile case on the eve of its trial, over the 2018 death of a former Apple engineer whose vehicle veered off a highway in Northern California. Legal and industry experts are now expecting more settlements, which would allow Tesla to avoid a highly publicized courtroom battle in which its technology would be scrutinized in detail.
Consumers and investors are also souring on Musk’s controversial reputation. He regularly uses X to espouse hard-line immigration ideals, promote antisemitic rhetoric, push conspiracy theories and criticize liberal causes as a “woke mind virus.”
Now Musk faces the most significant challenge to his leadership since 2018, after his false declaration that he had “funding secured” to take Tesla private. That claim led to separate $20 million fines for him and Tesla, and he was forced to step aside as chairman of the board.
Tesla is now asking shareholders to approve a gargantuan pay package, worth as much as $56 billion, that was struck down by a Delaware judge this year over an unfair process. Musk, whose shareholder support is usually ironclad, is not guaranteed to win that vote. His plea for 25 percent control of Tesla has been met with skepticism. Prominent investors, some of whom have been vocal supporters, have publicly said they’ve reduced their positions in Tesla over its recent direction.
“How brands market themselves and how they represent themselves in the market is crucial in an influencer-led system,” Gerber said. “Now we’re seeing it with Elon, where he’s become so divisive, and the sales are going to zero if he continues this.”
Tesla did not respond to a request for comment.
To be sure, Tesla has weathered reputational hazards before: In a short span in 2018, Musk invited a defamation lawsuit by referring to a Thai cave rescuer as a “pedo guy” and took a hit of a joint on Joe Rogan’s podcast, leading to scrutiny from NASA over his leadership of rocket builder SpaceX. His erratic behavior led investors to question whether he was fit to continue leading Tesla.
But, in the months that followed, Tesla’s moves and stock performance — along with the quick resolution of controversies facing the company — quickly erased those concerns.
“The moment of truth has now arrived for Elon Musk and Tesla with (Tuesday’s) conference call and messaging one of the most important moments in the company’s history in our view,” Ives said.
