Janice R. Andrews
Tesla’s stock problems continued on Friday, exacerbating the company’s year-to-date loss despite reports of inventory issues and major price reductions on its well-liked Model Y automobiles. The highly anticipated low-cost Model 2 project was reportedly put on hold, and the company that makes electric cars had a turbulent week due to continuing inventory problems.
On Friday, the stock fell as much as 6%, bringing its weekly loss to over 8% and its year-to-date reduction to almost 34%. According to Reuters, which cited insider sources and internal corporate correspondence, Tesla has given up on creating the more affordable Model 2, which was formerly expected to cost $25,000. Rather, the business wants to focus even more on developing its robo-taxi technology that drives itself.
According to a source who spoke with Reuters, “Elon’s directive is to go all in on robo-taxi,” indicating a change in direction for Tesla’s future ambitions for vehicle development. Concerns about profit margins and growing competition from low-cost Chinese automakers are the reasons behind this reroute.
Tesla’s significant inventory excess highlights the company’s recent difficulties. According to Bloomberg, Tesla had its greatest inventory backlog to date at the end of the first quarter, with 46,561 more vehicles made than delivered. Aggressive steps have been required as a result of this buildup, including dramatic price reductions on several Model Y combinations. Discounts as high as $5,000 have been seen on some variations, including the performance and long-range models.
Tesla’s earlier announcement of a $1,000 price increase for the Model Y and the decision to lower pricing contrast significantly, underscoring the importance of addressing the growing inventory issues.
The dismal first-quarter delivery numbers, which came to 386,810 automobiles overall, were much below analyst estimates and lagged behind the company’s 433,371-unit production output. Tesla ascribed this performance disparity to a number of operational hiccups, such as a brief closure at its Berlin plant, problems with shipping in the Red Sea, and modifications to its Model 3 manufacturing in California.
Nonetheless, industry observers like Ryan Brinkman of JPMorgan say that a major contributing cause to Tesla’s supply deficit is waning demand. Brinkman identified two factors that are contributing to Tesla’s demand challenges: growing popularity of hybrid vehicles in the U.S. market and fiercer competition from Chinese automakers.
Brinkman reduced his Tesla price target lower to $115 in response to the dismal data. He also issued a warning to investors over the company’s valuation, stressing out that the first-quarter sales decline was expected to put even the most bullish investor sentiment to the test.
As it works through these operational challenges and strategic reorientations, Tesla’s future trajectory is still unknown. The discontinuation of the Model 2 project indicates a dramatic change in Tesla’s focus toward the development of sophisticated autonomous driving capabilities. This highlights how competitively challenging it is for market leaders in the electric vehicle space, such as Tesla, to stay ahead of the curve.
