Tesla: Merciless growth stress at the US carmaker

We know rampant growth from biology and medicine. For example, with the Babirusa, a deer boar, which is life-threateningly endangered by the growth of its tusks. The tusks can arc to the head and penetrate the brain, causing death.

In order to keep a lawn “weed-free”, you can use herbicides, i.e. growth substances that trigger extreme growth in the “weeds”. The weeds are growing to death. Hypergrowth can be deadly.

This also applies to economic sectors. Take the car industry as an example: no car manufacturer has shown such dynamic growth over the past nine years as Tesla. From 2013 to 2022, Tesla’s car sales shot up from 22,242 to 1.31 million. This corresponds to an annual growth rate of 58 percent.

This year there should be 1.8 million Tesla vehicles. In order to “accommodate” production, Tesla radically cut prices. Model 3 and Y are more than $5,000 or 14 percent cheaper in China. In Germany, Model 3 was devalued by 5,000 euros and now costs 44,000 euros as much as the VW ID3. The list price for Model Y was reduced by 9100 euros.

In addition, there were increasing Tesla rental approvals in Germany. Cars are appearing at spectacular rates at a number of leasing companies and car subscription providers. Tesla sells on price.

Hypergrowth and price dumping strategy at Tesla

With the fall in prices, the competitors are under pressure. The Chinese electric car manufacturer XPeng has reduced the prices for all models. The suspicion of dumping is in the room. Let’s see how long VW boss Oliver Blume’s assertion that VW is not involved in the price war is valid.

In addition, the frustration among Tesla owners is growing, because the price drop of the new Teslas also reduces the value of the Tesla owners’ vehicles. Creeping depreciation of residual values ​​brings new risks to the balance sheets of leasing companies.

Leasing companies are becoming cautious and will either buy the next Tesla at even higher discounts or “sell” the cars back to the automaker at pre-negotiated prices. Then he has to book the losses from leasing returns.

>> Read here: New and used car prices in Germany reach record highs

A time bomb starts ticking. Today’s rebates create additional losses tomorrow. The treacherous thing is that outsiders won’t see the losses for a few years. A vicious spiral is unleashed.

Tesla: Price War, Hyper-Capacity Growth and the Commodity Trap

With a profit margin of 16.8 percent in 2022, Tesla can afford the price war, even if the profit margin has recently fallen slightly due to the price war. Almost all manufacturers are making losses or “razor-thin” profits with battery-electric cars.

Of course, the price war is eating away at Tesla’s profit margin, but the company has room to maneuver with a margin of almost 17 percent. In Europe, the electric car market is growing more slowly with the Ukraine war, but Tesla production is trimmed to full throttle. So Tesla has to gain market share in the young electric car market in Europe.

Tesla founder Elon Musk wants to sell around 20 million cars by 2030. The company is in relentless growth stress. Ever larger factories, ever fewer production steps to reduce costs, huge aluminum casting machines to create even better scales: Tesla is developing from a product innovator to a production machine.

>> Read here: Electric cars – is the boom in Germany threatening to end in 2023?

In the future of autonomous driving, for example, Tesla has lost its lead. The Tesla autopilot has shrunk to a problem pilot. The Chinese like BYD, Nio or the electronics giant Huawei, which is now also installing its Harmony OS operating system in its own car brand Aito, are masters of the smart cockpit.

Business in China is getting tougher. China has the greatest potential and growth in electric cars. But cheap electric cars, which are taboo for Tesla, are also important in China. So Tesla needs to grow even faster in the premium market to reach its goals.

In doing so, the Chinese have partly overtaken Tesla in their core competence, the electric drive. BYD with the top model “Han”, Nio with the new ET7 and the Geely luxury brand Zeekr are superior to today’s Tesla models in terms of software functions, quality and battery performance.

BYD is growing in leaps and bounds. With 1.86 million fully electric cars and plug-in hybrids sold, BYD has overtaken Tesla. BYD can only be robbed of market shares through dumping.

Conclusion: Tesla as the GM of the electric age?

Tesla is fueling its hyper-growth with just two models, the Model 3 and Model Y. The two are body variants rather than distinct, distinct models. Tesla’s big ones, the Model S and Model X, have atrophied into niche cars. The innovator function has been lost.

Up until the 1960s, there was only one carmaker in the world that could capitalize on its economies of scale: General Motors (GM). Production driven, more and more brands were launched by GM to accommodate production. More and more of the same cars with higher and higher discounts was the sales strategy. Almost 101 years after the company was founded, GM filed for bankruptcy in June 2009.

Hypergrowth has risks. Tesla has to be careful. Elon Musk is still making picture book profits, but dumping and incentives are robbing economic power.

The author: Ferdinand Dudenhöffer is the founder and director of the Duisburg “CAR – Center Automotive Research”.

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First publication on 01/30/23 at 9:13 p.m.

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