Tesla skeptics are voicing their concerns following the company’s impressive $500 billion rally this year. The primary challenge for Tesla in the next two years will be a surge in competition from rival automakers who are capitalizing on the increasing demand for electric vehicles. This challenge comes at a time when Elon Musk, Tesla’s CEO, appears to be divided across various ventures, ranging from social media and space travel to artificial intelligence.
According to respondents in the latest Markets Live Pulse survey, 54 percent view heightened industry competition as the greatest risk for Tesla, while 26 percent believe that Musk’s behavior and decision-making pose a significant concern for Tesla shareholders. Matthew Tuttle, CEO of Tuttle Capital Management, describes Musk as an unpredictable figure, making him one of the top risks for Tesla.
Despite an astounding 128 percent rally this year, driven by enthusiastic investors and Musk’s optimistic prediction of the imminent era of fully autonomous vehicles, 67 percent of the survey participants believe that the billionaire executive should prioritize the carmaker as profit margins begin to thin.
While Tesla currently holds a significant lead over its competitors, there is an expectation that it will maintain this dominance in a future where electric vehicles become more prevalent. However, Tesla rivals are catching up rapidly. For example, China’s BYD recently set a sales record by delivering 352,163 fully electric vehicles in the second quarter, nearly closing the gap with Tesla, which handed over 466,140 EVs to customers worldwide.
Some argue that many of Tesla’s rivals are still grappling with initial challenges. For instance, Ford Motor experienced a decline in US electric vehicle sales in the second quarter due to production pauses earlier this year. Nonetheless, analysts and investors caution that Tesla’s current advantage can quickly erode as government policies, like the US’s Inflation Reduction Act, prompt other automakers to embrace electric vehicles. With competitors ramping up their efforts, Tesla’s expensive shares, trading at 75 times forward earnings, leave little room for error, especially when compared to GM and Ford’s significantly lower price-to-earnings ratios.
Craig Irwin, an analyst at Roth Capital Partners, emphasizes that competition is the most significant long-term risk factor for Tesla. He explains that even average execution from the approximately 100 new EVs entering the market this year will put pressure on Tesla, despite its current lead over competitors.
Defending its market share comes at a cost for Tesla. Around 63 percent of respondents expect the company to continue reducing prices to capture larger volumes, resulting in a decline in profit margins. Further price cuts will only narrow the gap between Tesla and other auto companies, making the situation more challenging.
The impact of recent price reductions on Tesla’s profits will become evident when the company reports its second-quarter results. In the past six months, the average profit estimate for the quarter has decreased by 29 percent.
Nicholas Colas of DataTrek Research highlights the importance of revenue and margin growth for winning stocks, remarking that both factors are essential for Tesla’s success.
The “Musk-risk” associated with Tesla shares gained attention last year when Musk publicly pursued a bid for social media platform Twitter and sold significant portions of Tesla stock to finance the acquisition. This increased pressure on Tesla’s shares and raised concerns that Musk was too distracted to effectively run the company.
Since then, the value of Twitter has also diminished. Approximately 67 percent of survey respondents believe that Twitter will never be worth as much as Musk paid for it.
It is clear that Tesla faces challenges from competition, industry dynamics, and the distracting interests of its CEO. The next two years will be critical for Tesla’s ability to maintain its dominance in the electric vehicle market.
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Alex Smith is a writer and editor with over 10 years of experience. He has written extensively on a variety of topics, including technology, business, and personal finance. His work has been published in a number of magazines and newspapers, and he is also the author of two books. Alex is passionate about helping people learn and grow, and he believes that writing is a powerful tool for communication and understanding.
