Thursday, April 18

Elon Musk’s decision to slow down new Tesla models puts growth at risk


Elon Musk Bets He Can Convert Tesla INC.

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at one of the world’s largest automakers while selling just a handful of models, challenging a long-held belief in the auto industry that a diverse array of updated models is needed to attract buyers.

It’s another example of Musk’s defiance of industry orthodoxy, at a time when competition from electric vehicles has never been fiercer.

Tesla, which aims to increase vehicle deliveries by an average of 50% a year, does not plan to bring any new models to market in 2022, Musk said this week. The company has deferred production of its long-awaited Cybertruck until 2023, he said, and isn’t working on the $25,000 car he mentioned earlier.

Such delays are likely to make it difficult for Tesla to maintain its rapid pace of growth, Bernstein analyst Toni Sacconaghi said, questioning whether Model 3 and Model Y demand would be enough by 2024 for the company to hit its growth targets.

If Tesla were to increase vehicle deliveries by its 50% annual target, it would likely have to deliver more than three million vehicles by 2024. Its Model 3 sedan and Model Y compact sport utility vehicle accounted for 97% of Tesla’s roughly 936,000 deliveries on last year.

“It’s really unprecedented for a single model car to sell 1.5 million units a year, let alone two of them from the same company,” Sacconaghi said.

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Corolla was the world’s most popular vehicle in 2020, with sales of more than 1.1 million vehicles, according to analysis by Bernstein.

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Musk dismissed such concerns, telling analysts that Tesla’s advanced driver-assist technology would make its vehicles more useful and therefore valuable.

“It is evident from the questions that the seriousness of full autonomous driving is not fully appreciated,” he said. “If the cost of our cars didn’t change at all, we’d still sell as many as we could make.” Full Self-Driving is a suite of advanced driver assistance features that Tesla sells for $12,000. It still doesn’t make vehicles autonomous.

Tesla’s production delays were met with skepticism on Wall Street, where shares plunged more than 11% on Thursday, a day after Tesla reported a record $5.5 billion annual profit for 2021.

“It is clear… that the seriousness of full autonomous driving is not fully appreciated.”


-Elon Musk

Tesla’s focus on ramping up production of existing models is likely to help the company improve its results this year, but delaying the launch of new models could eventually leave it more vulnerable to competition, analysts said. Car companies typically aim for 10% to 15% of their models in any given year to have recently undergone a significant upgrade, said Barclays analyst Brian Johnson.

Musk has kept buyers waiting for new models before. The company’s Model X sport utility vehicle, for example, was initially scheduled for production in late 2013. About two years later, Tesla had delivered only a handful of the SUVs.

This time around, buyers have a plethora of alternative electric vehicles to choose from. general motors Co.

GM -2.28%

has said it aims to introduce 30 new electric vehicles globally by 2025. This year alone, automakers are expected to launch more than two dozen battery-powered vehicles in the US, according to Bank of America. Among them is an electric version of Ford Motor Co.

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F-150 pickup from . rivian automotive INC.,

which went public in November, was the first to go public in the lucrative pickup truck segment, launching its R1T last year.

Ford and GM recently introduced their first electric trucks. WSJ auto reporter Mike Colias discusses the different strategies the two legacy automakers are pursuing to bring their electric vehicles to market. Photo Illustration: Alexander Hotz/WSJ

“Every day that Tesla waits, there will be a new entry,” said Tyson Jominy, who heads the data and analytics practice at research firm JD Power.

Ford’s experience a century or so ago could be a warning to Tesla, Johnson, an analyst at Barclays, said in a recent note to investors. Ford controlled about 60% of the US car market in 1921 thanks to the success of the Model T, he wrote. Ford focused on the Model T for years to come, but in doing so rivals, including General Motors, released a wider range of cars that reduced Ford’s market share, which by 1927 had fallen to 16%.

“With few additional details about the future physical product, we see the risk of Tesla repeating the story of the 1920s Ford Model T,” Johnson wrote.

Tesla did not immediately respond to a request for comment.

Musk has made his mark by taking an independent tack in the auto industry, defying doubters. He invested in fully electric vehicles when many industry stalwarts questioned their viability, eventually making Tesla the world’s most valuable automaker and himself the world’s richest person.

Tesla’s ability to meet its production targets with its existing vehicle lineup is likely to depend heavily on the company’s success in China, the world’s largest auto market, said Mark Wakefield, managing director of consultancy AlixPartners. LLP.

Tesla’s Shanghai plant became the company’s largest by output last year, but Tesla faces a tougher business environment in China, where it has been caught up in a government crackdown on big tech.

Musk, on the Tesla analyst call, focused on the promise of the company’s efforts to develop fully autonomous vehicles.

“Over time, we think fully autonomous driving will become the most important source of profitability for Tesla,” Musk said, adding on Thursday that it would likely take rivals at least five years. to emulate Tesla technology.

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