Musk's Twitter act has negatively affected Tesla
It's no secret that Tesla (TSLA, Financial) CEO Elon Musk's controversial acquisition of Twitter has caused adverse consequences for both Tesla and Twitter, with many employees leaving the latter and risking its survival. This has also affected Tesla's brand and stock price, leading to investors and customers distancing themselves from the company. Musk's image and leadership have been crucial to Tesla's success and its stock price, so it's no suprise that with him getting increasingly distracted running Twitter, things aren't going as swimmingly for Tesla.
Tesla's stock has fallen by more than half since the announcement of the acquisition of Twitter. To be fair, Tesla is also facing stiffer competition in the electric vehicle market, but part of the reason for this is its product line has also grown stale, and it's been resorting to price cuts that have damaged its once-elite image. Although Tesla's stock has begun to rebound, concerns about Cybertruck's production delays and safety issues could negatively impact the company's market share.
ESG and price cuts to the rescue?
Despite concerns about Musk's behavior and its impact on Tesla's reputation and financial performance, the board seems reluctant to separate him from the company. Instead, ESG (environmental, social and governance) financial incentives could help the company adjust to the realities of today's more competitive EV industry industry.
Tesla has achieved strong financial results and even expanded its market share in the Chinese EV industry slightly by slashing prices according to Reuters, but its reputation and stock price are in danger if it keeps on the path of lowering its profitability and brand reputation. The company's long-term outlook depends on its ability to maintain its competitive edge, innovate and navigate regulatory challenges in the rapidly changing automotive industry. Tesla will face stiffer competition in the EV market in 2023, and price cuts are just the beginning.
Production and supply chain issues
Tesla faces production and supply chain challenges, including bottlenecks, disruptions and quality control issues. To overcome these challenges, Tesla needs to secure necessary materials, manage production effectively and maintain high standards for quality control. While Tesla fell short of its 50% annual production growth target in 2022, it aims to produce 1.8 million cars in 2023, potentially producing 2 million. Pricing will be essential for Tesla, with recent price cuts driving demand.
Despite concerns over a weak economy affecting buyer interest, Tesla's recent aggressive price cuts have boosted demand. The company slightly beat Wall Street targets for fourth-quarter revenue and profit and plans to cut costs to cope with the recession and intensifying competition. Tesla maintains a long-term target of a compounded 50% annual rise in sales.
Tesla aims to take advantage of the growing middle-tier market by cutting the prices of its EV range globally by up to 20%. In addition, Musk signaled an optimistic outlook for production this year. According to Statista, EVs are still priced as luxury vehicles and are unaffordable for most non-wealthy buyers, so there is still plenty of opportunity to grow market share buy slashing prices.
Source: Statista
Safety concerns
Tesla recalled over 362,758 vehicles in the U.S. due to safety concerns with its Full Self-Driving (FSD) Beta software, which may cause crashes by acting unsafely around intersections, stop signs and speed limits. However, it is not a mechanical recall, as Tesla will integrate an over-the-air software update to address the issues.
Musk objected to using the term "recall" and emphasized that FSD Beta does not make Tesla electric cars autonomous or safe to drive without human supervision.
Edge through innovation
Tesla's innovation has been a significant factor in its success in the EV market. For example, the company has invested heavily in battery technology, which has enabled its vehicles to have long-lasting and high-performance batteries, reducing range anxiety for drivers. Tesla has also developed intensive autonomous driving technology that uses advanced sensors and software, which can improve safety and convenience for drivers.
The company has developed AI chips that are more powerful and efficient than traditional computer chips. Tesla's vertically integrated manufacturing model has allowed it to control every production stage, from design to delivery, streamlining the manufacturing process, reducing costs and improving quality control. Additionally, Tesla has performed well on the manufacturing front with its highly efficient Gigafactory model.
Tesla's competitive edge in the EV market has historically been driven by its focus on innovation. This approach has allowed the company to develop cutting-edge technologies, stylish designs, software and connectivity features and more. Tesla's cylindrical lithium-ion battery cell, Autopilot system, full self-driving option, sleek designs, over-the-air software updates and Powerwall and Powerpack products are some key innovations that will continue to contribute to its success.
This has resulted in higher R&D costs, but historically it's been worth it for the company. Leaving that innovation leadership behind would be uncharted territory.
Did Tesla create its own competition?
Tesla's decision to make its patents freely available back in aimed to encourage the development and adoption of EVs worldwide. Just like with Netflix (NFLX, Financial) initially allowing account-sharing, the theory was that the more people were exposed to the concept, the faster Tesla could grow its customer base by encouraging the popularity of EVs in general.
Initially, this was a resounding success. However, nowadays it may have potentially contributed to intensified competition for Tesla, as other automakers can use some of its technology to produce their own EVs. While this has led to a proliferation of EVs on the market, it has also made it challenging for Tesla to maintain its competitive edge.
Tesla's open-patent policy has driven innovation and improved EV quality, leading to increased demand for EVs in general and allowing Tesla to remain a market leader. However, this move has also led to increased competition from other competitors, especially in countries like China where EVs are more popular than in the U.S. and where Tesla got a late start.
Tesla's biggest challenge is the commoditization of EV technology, which reduces its competitive advantage. To remain a market leader, Tesla must continue to innovate and develop new technologies that differentiate its products from its competitors. Despite the challenges, the benefits of open-sourcing their patents have far outweighed any potential adverse effects for Tesla. The decision to open its patents to competitors has been a positive development for the EV industry and the environment.
Takeaway
Musk's distraction with Twitter has undeniably hurt the company's brand image and may have even held back innovation. However, Musk isn't the only person at Tesla, and he's not even the one designing or making the vehicles. The capacity of Tesla to be innovative, maintain its competitive edge and deal with regulatory obstacles will determine its long-term prospects. In addition, Tesla has set a long-term goal of increasing sales by 50% annually due to its dramatic price cuts, which have increased demand. Finally, the open-patent approach of Tesla has encouraged innovation and raised the caliber of EVs, but it has also increased competition from Chinese automakers and commoditized EV technology.
