Tesla, previously valued at over $1 trillion, experienced a more than 7% decline in its shares on Monday following a drop in sales during February in China, the world’s largest car market. Increased competition and a slowdown during the Lunar New Year holidays negatively impacted sales. This decline in the pivotal market has cast a shadow on Tesla’s global delivery prospects. Additionally, the situation was compounded by the expiration of valuable tax credits that had previously stimulated electric vehicle (EV) demand in California and the United States.
Tesla’s sales in China were down 19% from a year earlier and at their lowest level since December 2022. The company usually uses earlier months to ship vehicles out of its Shanghai plant for overseas markets and ramps up shipments in later quarters for Chinese domestic sales. The lower-than-expected numbers fueled worries about the health of Tesla’s sales and margin prospects.
The drop in Tesla’s sales in China comes as many local automakers sell advanced electric vehicles at competitive prices. The growth in competitors threatens to eat into Tesla’s gains with its own price cuts. The company has offered incentives, including insurance reimbursements, to lure consumers into the world’s biggest EV market. Last week, local rival BYD launched a new version of its best-selling model at a price below the final price of its predecessor, further escalating a pricing war in the industry.
Moreover, a slowdown in the Chinese economy has curbed economic activity and consumer spending in recent months. This has weighed on demand for EVs and other consumer goods, leading some analysts to cut their sales forecasts for Tesla this year. Adding to the challenges, CEO Elon Musk warned that Tesla’s profitability would suffer this year while it invests in a lower-priced Model 3 and expands production in China.
Amid the turmoil, Tesla shares dropped below $270 for the first time since October 2022, erasing nearly $34bn of value. The stock recouped some ground in after-hours trading but remained down almost 24% this year.
Amid all the turmoil, investors wonder what it will take for Tesla to reshape the automotive landscape and live up to its potential. The company must overcome several outstanding challenges to achieve a resurgence, including addressing manufacturing concerns, cultivating consumer trust, and introducing innovative products that cater to different markets.