Is Elon Musk steering Tesla into a ditch?
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It's no secret Elon Musk has had a tough few months: a chaotic Twitter acquisition, an explosive (but nonetheless cheered) SpaceX rocket launch, and now, continued turmoil within his electric car brand, Tesla, for which the billionaire CEO has opted to slash prices in hopes of driving up lagging demand. "This is a good time to increase our lead further, and we'll continue to invest in growth as fast as possible," Musk said recently of the changes, noting on an April 19 earnings call that Tesla has a "unique strategic advantage" in that its drivers are already primed as customers for the company's self-driving software — whenever that debuts. "We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and a higher margin," he added.
It's a huge gamble, and one investors aren't entirely sure will pay off. In fact, 17 major company shareholders have since called on Tesla's board to do something about Musk's behavior, which they've deemed distracted and damaging. "Corporate boards can and should intervene if a chief executive appears to be distracted or overly focused on other ventures," the group, which collectively holds $1.5 billion worth of Tesla stock, wrote in its letter. "Yet, the Board has permitted Elon Musk to run multiple companies, leading to an inability to address the multiple strategic and competitive issues facing Tesla." Indeed, while first-quarter deliveries rose 36 percent from the start of 2023 — when the staggered price cuts first began — quarterly gross profit margins plummeted to their lowest point in two years. Ultimately, Musk's entire approach is one lacking both precedent and "consensus as to whether it heralds more industry disruption or signals [his] desperation," Craig Trudell wrote for Bloomberg.
What are the commentators saying?
In slashing prices, Musk "might just be turning to his one remaining advantage in the EV business," said Insider's Matt Turner. Already, "Mercedes-Benz has taken a lead on autonomous driving," and "rival carmakers have revealed flashier, more exciting" alternatives. "But Tesla can cut prices and still deliver profits, something rival automakers struggle to do in their EV businesses." Moreover, all of the concern regarding margins is "very short-term oriented," speculated Tasha Keeney, director of investment analysis and institutional strategies at ARK Invest. Taken alongside the company's plan to turn its vehicles into robotaxis, which will ideally afford Tesla a "recurring revenue stream," Musk's cuts are loaded with potential, Keeney claimed, speaking with Yahoo! Finance. Getting cars out on the road, "as opposed to keeping margins high and prices high in the short-term," is a "smart decision," especially with Tesla's "data advantage" and "vertical innovation." (ARK purchased roughly $42 million worth of Tesla stock in late April.)
But until the company is able to debut such a self-driving flight (a milestone from which it appears a ways away), "when does the margin pain end?" Emma Powell mused at The Times, where she advised readers to avoid the stock. "Tesla is also asking investors to suspend disbelief, but maintaining firm faith that price cuts will deliver knockout sales volumes would be misplaced." Plus, that's without considering "the existential challenges associated with Musk's many extra-curricular activities," SpaceX, Neuralink, and Twitter among them. Will he offload more Tesla stock to further fund these ventures?
"Right now, it looks like the company's competitive position is being prioritized over protecting profitability and only time will tell if that is the right move," AJ Bell investment director Russ Mould told Insider.
What's next?
"Musk's latest strategic pivot will determine what happens next in an industry that Tesla already has turned on its head over the past decade," said Bloomberg's Trundell. "After the pandemic led to the biggest disruption in generations to auto supply-and-demand dynamics, Musk is betting his competitors will have little choice but to respond to his price cuts" with downward revisions of their own. It's also currently unclear whether the CEO is "truly willing to torch Tesla's profit margins" of his own accord, or if he actually "has less choice in the matter than he's letting on."
Meanwhile, though, Musk and his bottom line might do well to give his relatively-unchanged product offerings a bit of a facelift — "I think what he's going to learn is that product freshness matters a lot," predicted Ford CEO Jim Farley, citing Henry Ford's infamous (and damaging) insistence that the Model T only be made available in black. "You could have had red or green, but it took them 10 years."
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