Hey everybody, welcome back to the Elon Musk Podcast.
This is a show where we discuss the critical Crossroads, The
Shape, SpaceX, Tesla X, The Boring Company, and Neuralink,
and I'm your host, Will Walden. If you want uninterrupted
episodes of the Elon Musk podcast, please go to
clubelon.supercast.com to find out how there's a link in the
show notes. Tesla Inc has witnessed a sharp
decline in market value, losing over $94 billion in the early
weeks of 2024. Now this downturn marks a stark
contrast to the company's success in 2023, where its stock
value more than doubled. Now the slump is attributed to a
series of adverse developments, including reduced demand for E
VS in the United States, price cuts in China, and increasing
labor costs. Now the electric vehicle
industry is currently experiencing A slowdown
altogether, particularly in the US market.
Investors main concern on Tesla is stagnating growth, said
Jeffrey Osborne, an analyst from Cohen, highlighting concerns
about Tesla's performance, especially in light of the price
reductions in the competitive Chinese market.
Now, these factors have fueled investor apprehension,
contributing to the company's recent financial setbacks.
Tesla's recent market capitalization loss is
unprecedented since its public debut in 2010.
The company's stock has plunged by 12% since January 2024, the
most significant drop since a 14% decline over the first nine
trading days of 2016. The outlook for a rapid recovery
seems bleak given the current market conditions, and the
company has been aggressively cutting prices since early of
2023 to stimulate demand. But this strategy has led to a
substantial erosion of profit margins.
The third quarter of the previous year saw Tesla's
automotive gross margin excluded regulatory credits fall to 16.3%
from 27.9% a year earlier. And additionally, Tesla is
facing increased financial pressure due to pay raises for
production workers at its US plants.
We are going through a cyclical downturn for E VS, but
competitive dynamics are exacerbating the cyclical
pressures, said Ivana de Leskva, senior chief investment officer
at Spear Invest. She noted that the combination
of price cuts and shrinking margins are consequences of
these challenging market conditions.
Now adding to Tesla's challenges.
The company has had to redirect shipments intended for its
Berlin plant and suspend most production there from January
29th to February 11th due to security concerns and Western
military actions in the Red Sea. This disruption further
complicates the company's operational landscape.
Tesla first raised alarms about slow EV demand during its third
quarter earnings report in October.
Following this, several automakers and suppliers
worldwide expressed similar concerns, leading to a scaling
back of expansion plans across the industry in recent
development. Tesla's fourth quarter delivery
numbers, though better than expected, positioned the company
behind China's BYD company in global electric car sales.
This shift has been a wake up call for investors, particularly
after Tesla's stock was among the top performance in the S&P
500 last year. Tesla CEO Elon Musk, the world's
richest person as of last year, has seen a significant decrease
in his net worth by $23 billion in the early part of 2024.
His wealth, primarily derived from his stakes and Tesla and
SpaceX, has been affected by the recent downturn in Tesla's
market value. And despite these setbacks,
Tesla remains A crucial player in the global shift towards
electric vehicles. While China's BYD has surpassed
Tesla unit sales, Tesla still leads in revenue and profits,
particularly in the US market. However, Tesla's past success
and inflated market capitalization have made its
stock particularly sensitive to negative news.
A major point of contention of Tesla is its unfulfilled promise
to fully autonomous driving and AI advancements.
Being simply another automotive manufacturer is not going to cut
it for a $750 billion valuation, said to Levska, emphasizing that
Tesla's high valuation hinges on these future technologies and
the company's failure to deliver on them.
Thus far, in response to industry trends, Tesla has
announced pay increases for workers at its US factories.
This move follows similar actions by non union automakers
like Toyota, Volkswagen and Hyundai coming in the wake of
historic labor contracts securing the United Auto Workers
or UAW for employees at Ford, General Motors and Solantis.
Now the pay raises at Tesla, which were not detailed in terms
of amounts, apply to all US production associates, material
handlers and quality inspectors. This decision aligns with
broader industry trends where automakers are increasing wages
to remain competitive and respond to unitization efforts.
So Tesla's not doing anything really out of the ordinary here.
UAW President Sean Fain has identified Tesla as a key target
in the union's expansion efforts following successful wage
negotiations with the Big Three automakers.
And Fain attributed past unization failures to internal
corruption and unfavorable contracts, but remains
optimistic about UA WS future prospects.
Elon Musk, Tesla CEO, has historically been critical of
unions. He's emphasized cost cutting
measures in response to economic pressures and the need to make
Tesla's electric vehicles more affordable.
The increased wages for production workers, however, may
complicate these cost reduction efforts.
Tesla's Fremont factory, which employs over 20,000 workers, has
seen the formation of a UAW organizing committee.
The National Labor Relations Board previously ruled that
Tesla violated labor laws during past unionization efforts.
Tesla denies these allegation and is appealing the ruling in
federal court. The pay increases at Tesla's US
plans reflect A broader industry trend, though.
Following the UAW successful strikes against the Big Three
automakers. Other major car companies
including Hyundai, Honda, and Toyota have also raised wages at
their US factories in response to the unions.
Now, the wage hikes at Tesla and other automakers show a
significant shift in the automotive industry's labor
dynamics. While these increases are a step
toward addressing worker demands, they also reflect the
changing economic landscape and the growing influence of Labor
unions like the UAW. Now, Tesla's substantial market
value loss marks a challenging start to 2024, contrasting
sharply with its previous year's huge success.
And the company faces multiple hurdles, including slowing EV
demand, competitive market dynamics and increased labor
costs. And despite these challenges,
Tesla is the juggernaut in the EV industry.
And now it's under new pressures.
And the recent wage increases across the industry, including
at Tesla, could mean a significant shift in Tesla's
business. Hey, thank you so much for
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