Tesla Is Facing Demand Struggles On 3 Fronts

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The news about Tesla seems to all be positive this week since Tesla’s Q2 deliveries were a little bit higher than Wall Street expected. However, they were still down year over year. Furthermore, production was down even more than deliveries. (Deliveries: 466,140443956 = down 22,184; Production: 479,700410,831 = down 68,869). Maybe part of the reason the stock is booming is because people expect the finances to look quite good because of the production:deliveries ration, but I find it to be a warning sign.

There’s no note in the Tesla press release this time about any reasons for low production. My assumption is that production is down so much mostly because Tesla is facing less demand than it anticipated at the beginning of the year, or the end of 2023. Tesla has implemented a lot of different discounts, features, and marketing attempts to stimulate more sales. Yet, if demand hasn’t gone up, Tesla can’t afford to overproduce and sit on more and more inventory. So, my guess is that production was ramped down a bit in order to deal with lower than expected demand. If you have information saying otherwise, I’d love to see it.

So, the question is: what is going on with Tesla demand? From my perspective, there are demand challenges on three fronts.

But, let’s first say that Tesla sells a lot of cars. Selling more than a million cars a year, or a couple million a year, is a huge achievement, and it demonstrates huge demand for the vehicles, especially considering they don’t have the long history of other automakers and habitual sales from decades of brand loyalty. I’m definitely not saying here that Tesla doesn’t produce great vehicles (I own one and love it). The issue is just that demand has seemingly stopped growing and actually even dropped.

1) China

There are multiple issues in China. First of all, competition there is immense. There are nearly 300 electric vehicle brands! There are constantly new ones popping up with great offerings, and the mature automakers are constantly rolling out new, compelling, good-value-for-money models. It seems Tesla is not updating its vehicles quickly enough or impressively enough to keep up with the competition. Also, there’s been a price war going on due to factory overcapacity and the aforementioned competitiveness of the market. Tesla is still very popular in China, but it’s not the only game in town, it may no longer be the best game in town, and it is probably even starting to look a bit stale or out of date in many consumers’ eyes.

2) USA

In its home market, Tesla has one similar issue, one very different one, and another very different on. First of all, there are actually decent or even very good competitors on the US market now. There are a dozen or so electric cars and trucks consumers can buy and be very happy with. Concerns about range are long gone for many sane consumers, and new EVs are packed with features and tech.

Secondly, Tesla has basically given up one of its big moats — its Supercharging network. Opening up Supercharging to basically every other brand, one can comfortably buy an EV from another automaker and not have to worry about finding reliable fast chargers on a road trip. Of course, there’s a transition period with this, as adapters need to be provided until new EVs have built-in NACS ports, and that could be dampening demand on the overall EV market a bit, but the point is that you no longer have to buy a Tesla to have access to Tesla Superchargers. That’s a big deal.

Lastly, politics. Elon Musk, the face of Tesla, has waded into politics to a significant degree. His takes have often involved far right-wing conspiracy theories and misinformation that doesn’t put him in good light with much of the public. In fact, because he’s done it so routinely and so severely, there’s been about a 50% drop in Tesla interest from Democrats. That’s a huge hit. And it doesn’t seem like something Tesla could remedy quickly even if it tried — and it doesn’t seem to be trying.

All in all, these three factors spell serious demand challenges for Tesla in its home market going forward.

3) Europe

Europe is a similar story to China, with a little bit of the US story sprinkled in. Overall, the market just gets more and more competitive, there are more and more attractive options on the market, and there’s some price warring going on (even if not to the same extent as in China). Many buyers now realize that they can get exciting, top-quality electric cars from Volvo, Hyundai, Kia, Volkswagen, Skoda, Peugeot, MG, Audi, Renault, BMW, Mercedes, Toyota, Cupra, and others. Additionally, some Europeans have also been turned off by some of Elon Musk’s thousands of tweets on X. The effect is not as severe as it is in the US, but it’s an issue.

How much can these various demand challenges be overcome? How much are they temporary market challenges? Can Tesla turn everything around with an attractive new model, by ramping up Cybertruck production, by improving “Full Self Driving,” by throttling Superchargers to make non-Tesla EVs charge slowly, by coming out with a much improved upgrade on the Model Y, by entering new markets, with new marketing campaigns, by providing new features via over-the-air software updates, or in other ways? How much are these concerns perhaps overblown and we’ll see Tesla deliveries and production rise again as more people discover the value available in a Tesla Model 3 or Model Y? It’s hard to say. I don’t have a clue, of course, but my concern is that Tesla demand will either stagnate or continue dropping slowly as it gets further and further away from being “the hot new thing.”

Elon Musk said a few months ago that he still expects Tesla to see a sales increase in 2024 compared to 2023. The delivery numbers don’t indicate that yet, and the production numbers even less so. But it wouldn’t be the first time Musk pulled a rabbit out of his hat. We’ll wait and see.

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Zachary Shahan

Zach is tryin' to help society help itself one word at a time. He spends most of his time here on CleanTechnica as its director, chief editor, and CEO. Zach is recognized globally as an electric vehicle, solar energy, and energy storage expert. He has presented about cleantech at conferences in India, the UAE, Ukraine, Poland, Germany, the Netherlands, the USA, Canada, and Curaçao. Zach has long-term investments in Tesla [TSLA], NIO [NIO], Xpeng [XPEV], Ford [F], ChargePoint [CHPT], Amazon [AMZN], Piedmont Lithium [PLL], Lithium Americas [LAC], Albemarle Corporation [ALB], Nouveau Monde Graphite [NMGRF], Talon Metals [TLOFF], Arclight Clean Transition Corp [ACTC], and Starbucks [SBUX]. But he does not offer (explicitly or implicitly) investment advice of any sort.

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